Court, investors favor Samsung merger

By Kim Yoo-chul

A Seoul court cleared a legal hurdle for Samsung C&T’s proposed merger with Cheil Industries, Thursday, in a case brought by Elliott Associates. Investors also appeared to be betting on the passage of the deal at a shareholders’ meeting today.

The Seoul High Court dismissed the U.S. hedge fund’s appeal of a lower court’s rejection of an injunction to nullify Samsung C&T’s sale of its treasury stock to the construction materials maker KCC in order to increase the number of friendly votes.

It also said the terms of the merger, including the share swap ratio, were justified under domestic law.

Investors increased their buying of Samsung C&T shares Thursday, betting that it will get sufficient votes in favor of the merger at the meeting.

Samsung C&T shares closed up sharply higher, up 2,300 won, or 3.43 percent, at 69,300 won. Shares in Cheil Industries, the de facto holding company of Samsung Group, surged 10,500 won, or 5.72 percent, to 194,000 won. The benchmark KOSPI ended up 0.72 percent at 2,087.89 points.

Analysts said that the merged unit is expected to take steps to boost shareholder value.

Bernstein Research, a global research firm, said in a report that the merger ratio, which was called “unfair” by Elliott, was appropriate.

“The key issue at hand is the way the exchange ratios between the companies were calculated as allowed under Korean laws. Cheil-C&T used a market price based calculation to derive the exchange ratio, and the process has been upheld in the Korean courts,” it said.

Bernstein Research is an independent research unit of AllianceBernstein, a New York-based asset management firm which manages $476 billion.

Mark C. Newman of the research firm said either outcome from the July 17 shareholders’ meeting will have a positive impact on Samsung.

The analyst said the merger is being driven by the family owners’ interest in seeing a simplification of the complex inter-company ownership between the main subsidiaries and centralization of control over key companies.

“For minority shareholders of Samsung Electronics, we believe strengthening of control over the company by the (owner family) could lead to renewed interest for cash returns by Samsung Electronics, as the family’s interest becomes more aligned with minority shareholders,” it said.

According to its observation, the latest controversy surrounding Samsung restructuring stems from the fact that the group and the Lee family have been engaged in decades plus of maneuvering with the goal of transferring share ownership and control over various Samsung affiliates to the third generation.

It said Elliott’s recent challenge is pressuring Samsung, for the first time, to consider minority shareholders’ rights and objections.

“Regardless of the outcome of Elliott’s challenges, we believe these moves are positive and necessary for the long-term health of investing, not only in Samsung but in the Korean equity market in general, as it helps ensure that minority shareholder rights are upheld,” Bernstein said.