Elliott loses 2nd round in Samsung share case

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Elliott loses 2nd round in Samsung share case

A Korean court has ruled against Elliott Associates LP for the second time this month, setting back the U.S. activist fund’s efforts to block a controversial merger of two Samsung Group units that would help the founding family tighten its control over the business empire.

The Seoul Central District Court rejected a request to stop Samsung’s ally KCC Corp. from using treasury shares bought from Samsung C&T Corp. to vote on a proposed takeover by its affiliate Cheil Industries Inc., according to a statement. The court earlier this month rejected the U.S. fund’s request to stop the vote entirely.

The verdict is the latest twist in what may turn into the biggest proxy fight Korea has ever seen, with both sides lobbying for their cause. The contest pits the billionaire activist Paul Elliott Singer against the founding family of the country’s largest conglomerate as it undergoes a leadership transition.

There is no reason to believe the share sale only benefits Cheil industries and the Samsung family members, the court said. The court found no fault in the objectives, method, price and timing of the treasury stock sales, it said.

KCC agreed to buy all of Samsung C&T’s treasury shares on June 10, giving it a 5.96 percent stake. Companies cannot vote for themselves using treasury shares.

Elliott said it plans to appeal Tuesday’s court decision.

“We note the court’s decision but maintain our firm view that the deliberate sale of treasury shares, designed solely to support a fundamentally unfair deal for Samsung C&T’s shareholders, was wholly improper, not least from a corporate governance perspective,” Elliott said in an e-mailed statement.

Samsung C&T welcomed the ruling.

In May, the de facto Samsung holding company Cheil announced that it would acquire Samsung C&T. The deal would solidify the control of 47-year-old Lee Jae-yong over the Samsung Group, including the crown jewel, Samsung Electronics Co. C&T also owns about $10 billion of group company shares, making it a vital asset to Lee and his siblings who control Cheil.

Singer took a stake in Samsung C&T and has argued that the all-stock takeover offer “significantly undervalues” the target’s worth. The proposed deal would pass 7.8 trillion won ($6.9 billion) of C&T book value to Cheil without compensation, according to Elliott.

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