The proposed $8 billion merger of two Samsung Group companies came under attack from two directions on Friday, as an activist hedge fund filed a court action against the deal and a shareholder advisory group recommended shareholders oppose it. In a rare case of shareholder activism in South Korea, hedge fund Elliott Associates escalated its battle to block the merger, filing an appeal against a South Korean court ruling in a fresh bid to block a key shareholder vote on the deal.
And advisory group Institutional Shareholder Services Inc (ISS) recommended Samsung C&T Corp investors vote against the all-stock take-over offer from sister firm Cheil Industries Inc. The Cheil-Samsung C&T merger, some investors and analysts say, is key to consolidating various stakes in top affiliates of the sprawling family-run Samsung conglomerate ahead of a looming leadership succession.
But ISS said the offer from Cheil, Samsung Group's de facto holding company, significantly undervalued Samsung C&T and that potential synergies from the merger touted by the two firms are not enough to compensate. This report, along with a recommendation from advisor Glass Lewis & Co a day earlier to reject the deal, could help Elliott line up more supporters in its quest to have the deal voted down at a July 17 Samsung C&T shareholder meeting.
"This will make it a harder fight for Samsung," said Park Ju-gun, head of research at CEO Score. Elliott, C&T's third-largest shareholder with a 7.1 percent stake, has launched legal challenges and called on other investors to reject the deal. Cheil and Samsung C&T are also lobbying for investor support, promising improved shareholder returns and a better corporate governance structure for the post-merger company.
"We continue to believe the merger is in the best interest of the company and our shareholders," Samsung C&T said in a statement in response to the ISS report. An Elliott spokesman said the ISS report validated the fund's concerns. The fund earlier on Friday appealed against a South Korean court decision to reject an injunction request to block the Samsung C&T shareholders' July 17 vote on the deal. Elliott said C&T investors should reject the deal and afterwards consider replacing some board members for others who can better represent their interests.
Samsung C&T's biggest shareholder, South Korea's National Pension Service (NPS), meanwhile, in June increased its holding in the company by around 1.7 percentage points to around 11.9 percent, increasing its influence on the outcome of the proposed deal. Two-thirds of those present at the meeting and one-third of all shares have to vote "yes" for it to go through. An NPS spokeswoman declined to comment on the rationale for the pension fund's stake increase.
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