More challenges to merger seen

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More challenges to merger seen

Samsung may be heaving a sigh of relief after it triumphed over U.S. hedge fund Elliott Associates in its controversial merger last Friday, but it still has some hurdles to jump.

Elliott may lodge a lawsuit to challenge the merger between Samsung C&T, the construction arm of Samsung, and Cheil Industries, the fashion and chemical arm, citing a “wrongful and unfair” undervaluation of Samsung C&T.

Elliott, the third-largest shareholder in Samsung C&T before the merger, objected to the all-stock buyout deal that let Cheil Industries acquire Samsung C&T by offering 0.35 shares for each of the latter’s shares. The merged entity will be named Samsung C&T and become the de-facto holding company of Korea’s top conglomerate.

Following the approval of the deal by a shareholders’ meeting in Seoul, an Elliott official said, “The takeover appears to have been approved against the wishes of so many independent shareholders and [Elliott] reserves all options at its disposal.”

Sources say Elliott is also reviewing whether Samsung C&T employees’ visits to minority shareholders across the country to obtain powers of attorney to cast their votes before the Friday meeting constitutes grounds for annulling the deal.

Elliott may launch an indirect attack by filing a suit against Samsung affiliates such as Samsung SDI or Samsung Fire & Marine Insurance, which together own more than 11 percent of Samsung C&T shares. Under the Korean Commercial Act, a shareholder with a 1 percent or more stake in a company is entitled to take legal action against board of directors or the company, and Elliott recently purchased 1 percent stakes in both affiliates.

Paul Elliott Singer, founder and CEO of Elliott, has a reputation for pursuing his investments “to the ends of the earth,” and legal battle is a favored tool of the Harvard Law School graduate. The merger going according to Samsung’s plan was the first time a Korean conglomerate fended off a management challenge from foreign hedge funds. Other Korean companies, such as SK and KT&G, failed to thwart such attacks in the past.

Elliott is also likely to buy additional shares given the U.S. company’s share in the merged Samsung C&T will be 2.05 percent, a drop from its 7.12 percent stake before the deal. The minimum stake required for calling a temporary shareholders’ meeting is 3 percent.

Samsung is faced with the immediate task of coming up with a future vision for the merged entity and step up shareholder value as it promised, after shareholders cast votes in favor of the merger.

“Shareholders helped Samsung out even though in their hearts, they knew Elliott was right,” said Kim Byung-do, professor of business administration at Seoul National University. “If Samsung fails to live up to their expectations, there will be strong resistance from shareholders.”

When the merged Samsung C&T is launched in September, Samsung Electronics Vice Chairman Jay Y. Lee will hold 16.5 percent and be the top shareholder.

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