Samsung merger approved

Shareholders of Samsung Group's two key units gave the green light for their high-stakes merger on Friday, paving the way for a smooth leadership transfer at South Korea's top conglomerate.

The approval of the merger between Samsung C&T Corp. and Cheil Industries Inc. is expected to speed up Samsung's leadership transfer to Lee Jay-yong, the son of the group's patriarch Lee Kun-hee, who has been bedridden for more than a year after a heart attack.

It also marks a victory for South Korea's most powerful corporate empire against U.S. hedge fund Elliott Associates, which sought to block the merger, calling it a low-ball deal.

At an emergency shareholder meeting, 69.53 percent of Samsung C&T shareholders gave the nod to the proposal to merge with Cheil Industries, the group's de facto holding firm.

The company needed "yes" votes from two-thirds of the attendance, or 55.7 percent, and a third of outstanding shares to proceed with the merger plan. The attendance rate came to 83.6 percent.

At a separate shareholder meeting held around the same time. Cheil Industries also passed the takeover bid in an unanimous vote by 2,773 shareholders, who own 85.8 percent of the company's outstanding shares.

In late May, the two Samsung units announced the plan for a merger, claiming the proposed all-stock deal worth 8.9 trillion won (US$7.8 billion) will create synergy for the new entity, with a high growth potential in construction, food and beverages and biopharmaceuticals to a global reach.

The merged entity, named Samsung C&T, is scheduled to set sail on Sept. 1. If the merger is completed, Jay-yong will emerge as the biggest shareholder of the merged entity with a 16.5 percent stake, cementing his grip on the sprawling business empire.

Jay-yong currently holds a 23.2 percent stake in Cheil Industries. Following the merger, his two sisters -- Boo-jin and Seo-hyun -- will also each hold 5.5 percent stakes in the new firm.

The change will streamline the group's complex structure, allowing the new entity to stand on top, followed by Samsung Life Insurance Co. and Samsung Electronics Co.

Currently, Cheil Industries stands at the top, followed by Samsung Life Insurance, Samsung Electronics, Samsung C&T, Samsung Electro-Mechanics, and Samsung SDI Co., which is again trailed by Cheil Industries.

The new entity will also become the largest shareholder of Samsung Biologics Co. with a 51 percent stake, allowing Samsung to fully tap into the biotechnology business.

Samsung earlier said the new entity will boast a revenue of 60 trillion won by 2020.

Before casting ballots, Samsung C&T shareholders engaged in a heated debate over the pros and cons of the proposed merger.

"Elliott has been opposing the move, and there have been various reports regarding our intent," Choi Young-ik, a lawyer representing Elliot Associates, said at the meeting. "This merger must not be approved as around 7 to 8 trillion won of our assets will be handed over to Cheil Industries without any compensation."

Elliott, the third-largest shareholder in Samsung C&T, claimed several advisory firms have backed its stance, saying that Samsung is oppressing shareholders by selling treasury shares, which amounts to a 5.96 percent stake, to KCC Corp. in a bid to win approval for the merger at the shareholder meeting.

"There must be another intent behind the move to forcibly conduct the merger despite strong opposition," Elliot said. "We basically support the restructuring move, but it should be conducted in a more shareholder-friendly way."

Supporters stressed the merger should be carried out as proposed, saying it could help Samsung C&T find sources of growth.

"Samsung C&T has grown a lot via a merger of Samsung's trade and construction units. Around 20 years have passed since, and it is now very hard to continue growth with the existing businesses," an individual shareholder said.

Samsung C&T and Elliott have been embroiled in a proxy fight to gather more votes for each other's claim. Samsung took out an massive ad campaign via local media outlets, urging shareholders to support the plan.

Elliott applied for court injunctions in Seoul to stop the Friday shareholder meeting and nullify the builder's treasury shares sale to one of its shareholders.

Last week, the Seoul Central District Court threw down Elliot's requests and the Seoul High Court rejected appeals on both cases Thursday.

Industry watchers expect Elliott will take Friday's results to court.

"Elliott is disappointed that the takeover appears to have been approved against the wishes of so many independent shareholders and reserves all options at its disposal," the U.S. hedge fund said immediately after the shareholders' meeting.

Elliott has been claiming that the merger ratio -- 0.35 Cheil share for 1 Samsung C&T share -- is disadvantageous for Samsung C&T shareholders.

While other advisory firms, including Institutional Shareholder Services (ISS), lent support to Elliott's claim, the National Pension Service, Samsung C&T's top shareholder with 11.21 percent, reportedly decided to back the merger, helping Samsung C&T inch closer to the high-profile deal.

Shareholders of Samsung C&T also voted against Elliott's requests to amend the current rule regarding paying out dividends.

After the shareholder meetings, Samsung C&T and Cheil Industries vowed to pay more attention to shareholders' voices.

"We will listen more carefully to the voice of shareholders after the merger. We will also pay attention to the opinions of those who opposed, and expand communication," Samsung C&T and Cheil Industries said in a statement. "Cheil Industries and Samsung C&T have earned a new growth engine through the merger," they added.

The merger approval sent the two companies plunging on the main stock market. Shares of Samsung C&T traded 7.79 percent lower at 63,900 won at 1:51 p.m., while Cheil Industries also shed 5.67 percent to 183,000 won. The KOSPI shed 0.5 percent. (Yonhap)