Samsung alleges Elliott rigged dataSamsung has escalated its fight with Elliott Associates by raising doubts about the evidence the U.S. hedge fund submitted during a court hearing.
The hearing was held June 19 after Elliott, a major shareholder of Samsung C&T, sought injunctions to block the sale of Samsung C&T to Cheil Industries, the de facto holding company of Samsung Group.
Nexus, a legal representative of Elliott, presented a corporate evaluation report to reinforce the claim that the proposed merger ratio damages the interests of Samsung C&T shareholders, including Elliott.
The law firm quoted the report by EY Han Young that says the net asset value of Samsung C&T is more than twice that of Cheil.
EY Han Young is a local member firm of global audit company Earnest and Young.
Based on the paper, Nexus claimed that each Samsung C&T share should be exchanged for at least 1.16 shares in Cheil, instead of the proposed ratio. The merger announcement said that every Samsung C&T share will be exchanged for 0.35 share of Cheil.
The proposed ratio will incur damages worth 7.8 trillion won ($7.06 billion) to Samsung C&T shareholders, according to Elliott.
Samsung C&T asked for the original draft of the report on Monday, saying that the assessment uses disparate accounting standards towards Samsung C&T and Cheil.
“We believe that Elliott tampered with the report in a way that inflates the value of Samsung C&T and devaluates Cheil,” said a representative of Samsung C&T.
The legal representative of the Samsung unit also echoed the doubts over the report during the hearing last week.
“The report appears to be based on limited information,” said Kim Yong-sang, an attorney from Kim and Chang, “So, it’s not a credible source with objective standards.
“It is presented with a specific purpose to overestimate Samsung C&T and underestimate Cheil.”
An Elliott spokesperson said late Monday that “we categorically deny these allegations,” though the fund refrained from elaborating on its reasoning.
Samsung C&T also sent a request for verification to the local audit firm.
Then EY Han Young weighed in, accusing Elliott of violating a contract.
The audit firm said that the report is not meant to be used in court.
“Elliott deleted a part of the draft and submitted it to the court at discretion without any consultation [with EY Han Young],” the audit firm said in a statement.
“The report is banned from being released to the third party and should be used as a reference internally,” the firm said, “And the report is not an appropriate source to determine merger and acquisitions because it is designed to help internal decision-making based on limited information revealed on regulatory filings.”
The court will decide on the case by July 1, ahead of a planned meeting of Samsung C&T.
As the ruling and meeting approaches, the two sides are going all out to mobilize support.
High-ranking executives of Samsung C&T reportedly have embarked on business trips to meet foreign investors and investment-related institutes.
Both Elliott and Samsung C&T are hoping that the Institutional Shareholder Services, an investment advisory service, will make a recommendation to investors in their favor. As the legal battle becomes more tense, there is growing concern over aggressive activism by foreign investors.
A local research institute advised companies already listed on the stock market or considering going public should imitate Google and Alibaba, which divide their shares into multiple classes with different voting power to prevent any threat of a hostile takeover from firms like Elliott Associates.
A report released by Korea Economic Research Institute (KERI) on Tuesday wrote that the threat of a hostile takeover is keeping some companies from going public.
“As shown in the Elliott case, Korea’s listed companies lack measures to defend themselves from hostile M&A attempts,” wrote the KERI report. “Such cases make other companies to avoid going for an initial public offering [IPO]. Korea should implement policies to protect management rights of listed companies.”
According to the report, 1.88 percent of Korean companies that showed interest in going public on the Kospi in 2007 actually did so. That percentage continually declined, hitting 0.49 percent in 2013. Companies that tried to go public on the small-cap Kosdaq also shrunk to 0.39 percent in 2013, compared to 1.08 percent in 2007.
Instead of simply avoiding IPOs, companies should start issuing different classes of shares with varying voting rights, the KERI report said.
Google implemented such a system when it first went public in 2004, issuing two kinds of shares. Class A grants one vote per share, and Class B grants 10 votes per share. The system enables the Google founders to own 92.5 percent of the multiple voting right shares, Class B shares, which gave them 60.1 percent of total voting rights as of the end of 2014.
BY PARK EUN-JEE, KIM JI-YOON [firstname.lastname@example.org]