Elliott accused of employing 'wolf pack' tactic
By Kim Tae-gyu
Elliott Management employed a strategy of enticing other hedge funds to join its investment by sending an open letter to request the ownership restructuring of Samsung Electronics, according to local experts Monday.
Such “wolf pack” hedge-fund activism has emerged as a prominent way to influence large-sized targets such as Samsung Electronics, the world’s top maker of smartphones and memory chips.
“With a small fraction of Samsung shares amounting to 0.62 percent, Elliott’s efforts for change might not work effectively. Hence, it needs help from other funds for the formation of a wolf pack,” said Prof. Kim Sang-jo at Hansung University.
“In other words, Elliott strives to become a lead activist regarding Samsung and it now is wooing peripheral activists through the open letter. Samsung would be able to deal with a single wolf but a pack of wolves would be different.”
Last week, Elliott issued an open statement that the “unnecessarily complex” ownership structure of Samsung Electronics undermines it share prices, asking for the split-up of the tech giant.
Samsung has showed a prudential and textbook response to the open demand, probably due to last year’s proxy war between the U.S. hedge fund and its sister company Samsung C&T.
Back then, Elliott held a substantial stake of 7.12 percent in Samsung C&T, Korea’s leading builder that has a 4.1 percent share in Samsung Electronics, but did not win out.
“Last year, Elliott lost because it did not resort to the wolf pack tactic. It appears to have learned its lesson and is trying to attract other funds this time so as to achieve its eventual goal of securing capital gains through the appreciation of Samsung shares,” Kim said.
“The statement is a kind of invitation to other hedge funds and it remains to be seen how many would respond.”
Kim added that if Samsung Group, the nation’s top corporation, succumbs to the tactic, global hedge funds would work on other conglomerates including Hyundai Motor, SK, LG and Lotte because their ownership structures are also complicated.
Lee Jong-woo, a research head at IBK Securities, concurred.
“The imperative mandate of hedge fund operators is to make money no matter what strategies they take. If necessary, Elliott could join hands with other hedge funds,” Lee said.
However, Prof. Lee Phil-sang at Seoul University said that Elliott may be able to attain its goal alone because Samsung also hopes for an ownership change through a power transfer from the bedridden Chairman Lee Kun-hee to heir Lee Jae-yong, vice chairman of Samsung Electronics.
“What Elliott wants is in line with what Samsung hopes. In that sense, Elliott does not have to form a big alliance. Samsung is likely to react in tandem with Elliott’s wishes,” Lee said.