By Kim Yoo-chul
Samsung C&T Friday claimed that the merger proposal with Cheil Industries has been made in accordance with pertinent law so the 1:0.35 stock swap ratio will not be changed.
Appearing at the first hearing on Elliott Associates’ injunction request to block the deal, a legal counsel for the U.S. hedge fund objected to the merger.
“The ratio is decided upon rules, so changing violates this,” a legal counsel from at Kim & Chang said in Samsung’s defense at the Seoul Central District Court.
The court decision is expected July 1.
Under the proposed merger, Cheil Industries would issue 0.35 new shares per Samsung C&T share to acquire the whole company. The U.S. hedge fund, the third-largest shareholder in Samsung C&T, asked Samsung management to raise the ratio as it is unfair for Samsung C&T shareholders.
“When the merger plan was announced, Cheil Industries shares rose and this represents hopes about the merger,” the lawyer said.
The legal counsel stressed Samsung C&T’s management plans to announce measures to boost shareholder value after the deal closes.
“Elliott wants to block the July 17 shareholder meeting about the deal. This doesn’t make sense. A shareholder has the right to vote for the proposed deal. Elliott’s demand for dividends in kind is intended to crush Samsung C&T,” the lawyer said.
A dividend in kind is a stock dividend paid in company stockholdings instead of cash, which is the more common method.
A lawyer at NEXUS representing the U.S. hedge fund said there was little synergy in merging Samsung C&T and Cheil.
“Elliott can’t accept the swap ratio given by Samsung. Samsung C&T’s total assets reached 30 trillion won and it is one of the global leaders in the construction business. When you look at main business portfolios in Cheil Industries, that firm generates money by selling services and products in fashion, leisure, food and some others which are all non-construction products,” said the lawyer.
During the hearing, which was packed with more than 100 participants, including 14 legal representatives from the Samsung, Elliott and KCC sides, the NEXUS lawyer said Samsung failed to persuade investors about the synergy in combining the two units.
“Samsung lacks details for synergy in merging the two units. If the 1:0.35 swap ratio is accepted from the shareholder meeting, then Samsung C&T shareholders will get 20 percent of the real value. The result is that the Samsung owner family will benefit most. The ratio should be changed,” the lawyer said, adding Samsung C&T has 4.1 percent shares in Samsung Electronics.
“The main purpose of the merger is to control Samsung firms under a vertically integrated management structure, not to bring profits back to shareholders,” he said.
An attorney at Yulchon representing KCC said its decision to buy Samsung C&T shares is to help Samsung close the deal.
Samsung C&T sold 9 million of its treasury shares to KCC in order to smooth the way for its takeover. Elliott filed a separate action to nullify the decision as the decision was an unlawful attempt by Samsung C&T to shore up voting support.