In a country not known for investor activism, the campaign against the takeover of construction company Samsung C&T by affiliate Cheil Industries has been unusually loud. That’s only about 2.9 percentage points above the minimum two-thirds majority needed to approve the deal.
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Samsung’s founding family has strengthened its grip on the South Korean conglomerate this week, after a controversial merger was given the green light by shareholders.
(Earlier in the day Cheil’s shareholders had voted unanimously to pass the bid.) Samsung’s victory had not been guaranteed: Elliott Management, an American hedge fund with a 7% stake in C&T, had been fighting to derail the deal ever since it was announced in May.
U.S. hedge fund Elliott Associates, Samsung C&T’s third-largest shareholder, is opposed to the terms of the merger, saying it greatly undervalues Samsung C&T while overvaluing Cheil Industries.
The family-run corporations, or chaebols, which dominate the economy are used to running their business their own way, with little interest in the concerns of minority shareholders. 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.
The Samsung move indicates that it is targeting individual swing voters after its single largest shareholder National Pension Service reportedly chose to support the merger last Friday.
The deal was controversial, however, as one of the main shareholders in Samsung C&T claimed it significantly undervalued the company. In recent months, the New York hedge fund bought 1% stakes in two Samsung affiliates, giving it the right to sue on behalf of the companies.
“There are a lot of people who are just biting the bullet”, he said.
“Samsung and the Lee family have long been engaged in a decade-plus of maneuvering with a simple goal of transferring share ownership and control over various Samsung Group companies to the next-generation Lee family”, Bernstein analysts wrote in a research note. Others questioned how Samsung C&T-which built Dubai’s Burj Khalifa-could benefit by joining forces with Cheil, an operator of amusement parks and fashion businesses. Kim Woo-chan, an economist at Korea University, says it was only willing to make its stand against SK Telecom because it knew it did not hold the casting vote.
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The vote is expected to be close, although investors appear to be betting the merger will succeed, sending shares in C&T and Cheil up 3.4% and 5.7%, respectively, yesterday. A considerable number of foreign investors rejected the proposal while domestic public sentiment about the merger was also negative, showing that Samsung has yet to demonstrate the legitimacy of its work to overhaul its control structure.
