Challenge to Samsung’s merger deal goes to court

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Challenge to Samsung’s merger deal goes to court

The battle between Samsung Group and U.S. hedge fund Elliott Associates escalated on Friday as the two sides engaged in a proxy war in court over the legitimacy of Samsung’s proposed merger of Samsung C&T and Cheil Industries.

The court hearing in Seoul came as Elliott, a major shareholder of Samsung C&T, filed two injunctions earlier this month to block the $8 billion deal.

The court will rule on the case by July 1 before a definitive meeting set for July 17, where major shareholders of Samsung C&T are expected to vote on the plan.

More than 100 seats in a courtroom at the Seoul Central District Court were all filled 30 minutes before the hearing started, underscoring the significance of the high-profile legal battle, which is challenging the leadership succession plan at the country’s largest conglomerate.

Elliott maintains that the merger is neither necessary nor fair for Samsung C&T shareholders while Samsung C&T, a construction unit, claims the deal is justifiable in light of market conditions.

One injunction seeks to block the board meeting from being held and the other is to nullify Samsung C&T’s sale of treasury shares to KCC, calling the transaction an attempt to increase Samsung’s clout in the board meeting.

“Samsung failed to convince shareholders about the business synergies of the merger it presented,” said Choi Young-ik, a lawyer from Nexus, a legal representative for the U.S. fund.

“Rather, the merger is intended to boost the owner family’s control over the group, as the group is in the process of a generational leadership succession.”

The lawyer cited Samsung C&T’s 4.1 percent share in Samsung Electronics as the key reason for the merger attempt by Cheil, whose largest shareholder is Jay Y. Lee, the only son of ailing Chairman Lee Kun-hee.

“Samsung C&T’s 4.1 percent stake in Samsung Electronics is the key part to consider. This is worth more than 8 trillion won [$7.2 billion] in assets, but there is more than the stated value,” Choi said, implying that the possession of the share in Samsung’s crown jewel company will help the young Lee exert direct influence over other related affiliates as well as Samsung Electronics.

Under the plan, Cheil Industries, the de facto holding company of Samsung Group, will acquire Samsung’s construction arm, with every Samsung C&T share to be exchanged for a 0.35 share of Cheil. Choi said that each Samsung C&T share should be exchanged for at least 1.6 shares in Cheil.

According to Choi, the market evaluation of Cheil is currently “inflated” because of its position at the top of group’s shareholding structure.

Samsung C&T defends the merger plan.

“The merger ratio was decided on the basis of current share prices,” said Kim Yong-sang of Kim & Chang, a legal representative for Samsung C&T. “The law states that the merger ratio be set based on the share prices.”

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