The nation's largest conglomerate and a U.S. hedge fund finally began the first round of their legal duel Friday.
At a hearing in the Seoul Central District Court, Elliott Associates, an activist investment fund, attacked Samsung C&T's proposed merger with Cheil Industries as "unfair, unlawful and damaging to shareholders' interests."
Samsung C&T, the group's construction and trading arm, struck back, contending the merger is perfectly legal and pointing to the hedge fund's "malicious intention."
Elliott's argument that the scheduled merger is less for Samsung C&T itself than for the smooth transfer of corporate control within the founding family may not be entirely wrong. Samsung also acknowledges the managerial succession is part of its objectives for the merger, along with creating synergy and simplifying its complicated cross-shareholding structure.
However, the U.S. private equity fund comes across as a hypocrite if it talks about improving Samsung's governance structure. Elliott's notorious track record of "vulture picnics" in various parts of the world, particularly in Latin America and Africa, suggest its ultimate purpose is to maximize investment returns by shaking up its target.
It was regrettable in this regard Samsung let its guard down initially.
The merger ratio of 0.35 Cheil share for each C&T share should have no problem legally as it reflects their most recent stock prices. Yet many C&T investors would find it somewhat unfair given the present scale and potential of the two companies. The group should have explained far more sincerely this as well as its plans to maximize synergy with the merger, to better persuade skeptical investors, including small shareholders.
That Samsung has not done so speaks volumes about the group's current atmosphere. It was a surprise that Samsung did not know ― or care ― when Elliott sent a query about the merger and even when it began to buy up Samsung C&T's shares. It is hard to know whether the nation's largest chaebol was negligent or complacent. In any case, Samsung should change to suit the changing corporate environment, in which businesses have to satisfy their shareholders better, be it in the form of higher dividends or more sincere corporate disclosures.
There is a love-hate relationship between Koreans and family-run business groups that dominate their national economy. Not all Koreans love the corporate behemoths but few want to see them swayed by foreign speculators ― the Sovereign Asset Management that threatened the SK Group and Carl Icahn that did so with KT&G come to mind. As an old saying goes, "The skin is near the shirt," for many Koreans.
Foreign analysts say these threats would do much good for the Korean economy by rectifying corporate practices. That may be true in part, but few Koreans would like to see their national wealth flows out in the form of too high lesson fees. Chaebol instead should change themselves through more transparent governance and management that takes better care of both shareholders and stakeholders.
How long Koreans will remain faithful to their national corporate players depend on how the latter behave.
KT&G come to mind. As an old saying goes, "The skin is near the shirt," for many Koreans.
Foreign analysts say these threats would do much good for the Korean economy by rectifying corporate practices. That may be true in part, but few Koreans would like to see their national wealth flows out in the form of too high lesson fees. Chaebol instead should change themselves through more transparent governance and management that takes better care of both shareholders and stakeholders.
How long Koreans will remain faithful to their national corporate players depend on how the latter behave.
At a hearing in the Seoul Central District Court, Elliott Associates, an activist investment fund, attacked Samsung C&T's proposed merger with Cheil Industries as "unfair, unlawful and damaging to shareholders' interests."
Samsung C&T, the group's construction and trading arm, struck back, contending the merger is perfectly legal and pointing to the hedge fund's "malicious intention."
Elliott's argument that the scheduled merger is less for Samsung C&T itself than for the smooth transfer of corporate control within the founding family may not be entirely wrong. Samsung also acknowledges the managerial succession is part of its objectives for the merger, along with creating synergy and simplifying its complicated cross-shareholding structure.
However, the U.S. private equity fund comes across as a hypocrite if it talks about improving Samsung's governance structure. Elliott's notorious track record of "vulture picnics" in various parts of the world, particularly in Latin America and Africa, suggest its ultimate purpose is to maximize investment returns by shaking up its target.
It was regrettable in this regard Samsung let its guard down initially.
The merger ratio of 0.35 Cheil share for each C&T share should have no problem legally as it reflects their most recent stock prices. Yet many C&T investors would find it somewhat unfair given the present scale and potential of the two companies. The group should have explained far more sincerely this as well as its plans to maximize synergy with the merger, to better persuade skeptical investors, including small shareholders.
That Samsung has not done so speaks volumes about the group's current atmosphere. It was a surprise that Samsung did not know ― or care ― when Elliott sent a query about the merger and even when it began to buy up Samsung C&T's shares. It is hard to know whether the nation's largest chaebol was negligent or complacent. In any case, Samsung should change to suit the changing corporate environment, in which businesses have to satisfy their shareholders better, be it in the form of higher dividends or more sincere corporate disclosures.
There is a love-hate relationship between Koreans and family-run business groups that dominate their national economy. Not all Koreans love the corporate behemoths but few want to see them swayed by foreign speculators ― the Sovereign Asset Management that threatened the SK Group and Carl Icahn that did so with KT&G come to mind. As an old saying goes, "The skin is near the shirt," for many Koreans.
Foreign analysts say these threats would do much good for the Korean economy by rectifying corporate practices. That may be true in part, but few Koreans would like to see their national wealth flows out in the form of too high lesson fees. Chaebol instead should change themselves through more transparent governance and management that takes better care of both shareholders and stakeholders.
How long Koreans will remain faithful to their national corporate players depend on how the latter behave.
KT&G come to mind. As an old saying goes, "The skin is near the shirt," for many Koreans.
Foreign analysts say these threats would do much good for the Korean economy by rectifying corporate practices. That may be true in part, but few Koreans would like to see their national wealth flows out in the form of too high lesson fees. Chaebol instead should change themselves through more transparent governance and management that takes better care of both shareholders and stakeholders.
How long Koreans will remain faithful to their national corporate players depend on how the latter behave.
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