Samsung deal triumphs in first legal challenge

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Samsung deal triumphs in first legal challenge

A Seoul court Wednesday ruled in favor of Samsung Group and dismissed one of the two injunctions applied by U.S. activist hedge fund Elliott Associates on the merger between Samsung C&T and the group’s de facto holding company, Cheil Industries.

Elliott, the third-largest shareholder of Samsung C&T, sought to block the holding of a shareholders meeting by the construction affiliate. The other injunction was to nullify Samsung C&T’s sale of treasury shares to KCC, calling the transaction an attempt to increase Samsung’s clout in the meeting.

On the former request, the Seoul Central District Court ruled that Samsung’s proposed merger plan complies with legal requirements so the injunction was not issued.

The court will rule on the legitimacy of the treasury shares sale before July 17, the day when Samsung C&T shareholders will cast their votes on the merger during a meeting.

Elliott is waging the legal battle because it says the merger is against the interests of Samsung C&T shareholders.

The court said that the proposed exchange of shares in the merger - one share of Cheil will be traded for 0.35 share of Samsung C&T - is “not significantly unfair” because there has been no price manipulation or backroom dealings in the valuations of the shares by the stock market, on which the ratio is measured.

Elliott claimed in its application that the ratio was decided at a time when Samsung C&T shares were undervalued by the market.

“Given that the stock market is susceptible to uncertainties, the assumption that a certain period benefits a certain company is not enough to nullify the merger ratio,” the court said. It added that there was no evidence that Samsung chose a specific time to determine the share ratio.

Samsung C&T welcomed the decision.

“Samsung C&T welcomes the court’s decision to allow the shareholder meeting to convene as planned,” the company said in a statement, “The court’s ruling validates the fairness of the merger ratio and affirms that legal requirements have been met.”

The statement went on to say, “We strongly believe that the proposed merger is in the best interest of the company and our shareholders.”

The court’s ruling gave a green light to Samsung’s attempt to overhaul its corporate structure, a maneuver that is part of the passing of the torch to Samsung heir apparent, Jay Y. Lee.

But it is too early to say the deal is done since Samsung C&T must receive two-thirds of the votes of participating shareholders at the meeting on July 17.

Elliott has tried to sway other investors - especially foreign stakeholders - to its side. Foreign investors hold a combined 33 percent stake in Samsung C&T including Elliott’s 7.12 percent share.

Local media outlets also reported that both Elliott and Samsung C&T have contacted Institutional Shareholder Services, an investment advisory service, hoping that the body would make a recommendation to investors in their favor.

The ISS is expected to issue its official stance within a day or two.

Despite the ruling, the hedge fund appeared unfazed and vowed to continue the fight.

“While we are disappointed with the court’s decision, we continue to believe that the proposed merger is neither fair nor in the best interests of Samsung C&T’s shareholders,” Elliott said in a statement.

“We will continue to seek to prevent the proposed merger from being consummated, and we urge all Samsung C&T shareholders to do the same.”

Analysts believe that Elliott will try legal maneuvers outside of Korea given its reputation for tenacity.

The hedge fund has often waged court battles for years.

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