But the deal has met unexpected opposition led by USA hedge fund Elliott Associates, which owns 7.1 percent of Samsung C&T and says the terms of the deal undervalue its shareholding.
For Samsung’s founding Lee family, the takeover is key to consolidating its grip on the multi-headed conglomerate ahead of a generational power transfer from ailing patriarch Lee Kun-Hee.
The outcome, though not surprising, came as a harsh blow to Elliott, which owns 7.12% of Samsung C&T and argues that valuation of 0.35% of each Cheil share for 1% of each Samsung C&T share dilutes the stake of all C&T shareholders. Elliott had said that the takeover deliberately underestimated share price of the C&T, at an objectionable value to its shareholders.
The hedge fund has unsuccessfully filed lawsuits to stop the takeover.
Samsung Group’s Lee family secured the support of 69.53 per cent of the company’s shareholders for the merger at an extraordinary general meeting (EGM). Lee Jae Yong, heir apparent to the Samsung Group, is expected to step up and take control of the country’s largest conglomerate after his 73-year-old father was hospitalised in May past year. So there is now widespread speculation in the marketplace that a merger between Samsung SDS and Samsung Electronics could be next, enabling Lee to further tighten his control over Samsung Electronics.
Earlier, Singer lost a similar challenge which sought to bar Samsung C&T from issuing treasury stock to chemicals maker and fellow C&T shareholder KCC Corp., widely considered to be pro-merger.
Family succession, once regarded as the norm in South Korea, is coming under criticism by ordinary Koreans.
July 1 – A Seoul court turns down a request made by Elliott to block a proposed merger of two Samsung Group units. The new company will be known as Samsung C&T and the relisting will be done on September 15. But the USA activist is likely to fight on.
Charging the takeover was “against the wishes of so many independent shareholders”, Elliott said “all options” were “at its disposal” – a strong hint that it would continue to battle the case in and out of Korean courts.
Publicly traded companies often remain under the control of close-knit family groups or state-backed shareholders, and legal protections for minority investors can be patchy. Splitting Samsung Electronics into operating and holding companies would help to create the latter, Credit Suisse analysts reckon.
“The narrow results will be shocking for Samsung and will make Samsung realise that they have a lot to do in order to win back investors and the market’s trust”, said Kim Sang Jo, executive director at the Solidarity for Economic Reform and an economics professor at Hansung University in Seoul.
“We will listen to those who opposed the deal and pledge to better engage with our shareholders and be more open to their input and feedback”, Samsung C&T and Cheil said in a joint statement Friday after the deal’s approval.