NPS in the hot seat

The merger of Samsung C&T and Cheil Industries is in the hands of the National Pension Service (NPS), the state investment fund that is the single largest shareholder of the trade and construction arm of Samsung Group.

On July 17, shareholders of Samsung C&T will vote on the merger plan, which has been challenged by U.S. activist hedge fund Elliott Associates. The pension fund, with an 11.61 percent stake in Samsung C&T, cancelled a committee meeting on Thursday to discuss its stance.

The fund has not decided whether to make a decision on its own or authorize outside advisers to vote on its behalf, considering the ramifications of its decision.

The NPS must be concerned primarily with profitability since it manages the assets that all Koreans will need to use in old age. It has about 1 trillion won ($885 million) of investments in both Samsung C&T and Cheil.

It will not lose anything whether the merger goes through or not. It should, therefore, make a decision with foresight based on the synergistic effects of the merger. The pension fund must place national interests first. The fund has an average 8.66 percent stake in 184 companies affiliated with the country’s 30 largest business conglomerates.

It has an average 9.26 percent in 24 key companies that are strategically important to their parent groups. Its vote on Samsung C&T and Cheil could set a guideline and precedent. Therefore, it needs to be extra prudent and wise.

It should also take into account past cases where foreign funds exited Korea upon making profits from investments in Korean corporate entities.

Advanced countries ensure various tools for companies to protect their management rights through differential voting rights, poison pills and golden share systems.

Korean companies however, do not have such defensive instruments to protect their managements from hostile takeover bids. This is partly because large companies fell out of public favor.

Conglomerates cannot dare to ask for such protection from the legislature in fear of stoking public suspicion and anger. Large companies should work harder to earn the confidence of the people so they can make rightful requests - long overdue - to protect their management rights.

JoongAng Ilbo, July 10, Page 30