Elliott's shareholder eligibility questioned

By Kim Jae-won

Elliott Associates’ eligibility to make demands as a shareholder of Samsung C&T is being questioned as the period of its ownership may not be long enough to exercise this right.

The U.S. hedge fund’s demand that Samsung C&T pay dividends to its shareholders is in question as legal experts argue that the fund fails to meet a special clause in the Commercial Law.

Some officials say Elliott is not eligible to exercise a shareholder’s right because only a person or entity that has held a 1 percent stake or more in a listed company for more than six months can do this, according to the special clause.

Elliott announced that it owned a 7 percent stake in Samsung C&T earlier this month. It was not on the list of shareholders in December.

However, others argue that the Wall Street hedge fund can raise an issue at a shareholders’ meeting, referring to a general clause of the law which allows any one owning more than a 3 percent stake in a company to make suggestions to the board of directors six weeks before a shareholders’ meeting. It did not specify the shareholding period as a condition for exercising this right.

Elliott sent a letter to Samsung C&T earlier this month, asking the company to pay dividends to its shareholders. The construction unit of Samsung Group has shares in its affiliates, including a 4.1 percent stake in Samsung Electronics, a 12.6 percent stake in Cheil Worldwide and a 17.1 percent stake in Samsung SDS.

Cheil Worldwide is the advertisement arm of the group while Samsung SDS is an information and communications technology firm. Samsung Electronics is the world’s largest electronics company.

Samsung has not raised the eligibility issue of the U.S. hedge fund yet. Observers said that Samsung may take the suggestion to the shareholders’ meeting and oppose it through a vote.

Meanwhile, market analysts have offered a contrasting view on whether Samsung will be able to draw enough support from shareholders to push ahead with its original merger.

Han Byung-hwa, an analyst at Eugene Investment & Securities, said the merger will go ahead as the National Pension Service (NPS), the major shareholder of Samsung C&T and Cheil Industries, will vote in favor as it will gain more from the proposed integration.

The NPS holds a 10.1 percent stake in Samsung C&T and 9.8 percent in Cheil.

“There’s little chance that the NPS, which holds about 1 trillion won in Cheil, will stand against the takeover or give up its vote. It’s obvious that Cheil shares will plummet if the deal’s thwarted,” Han said in a report.

Kyobo Securities echoed this view. It said it remains doubtful that the 26.7 percent represented by offshore investors will side with Elliott, while Samsung has secured at least 20 percent of friendly shareholders in order to pass the merger plan.

But, Hanwha Investment & Securities predicted the proposed merger may be spoiled by Elliott’s intervention. Kim Chul-beom, the chief researcher at Hanwha Investment, said it will not be easy for Samsung to win enough votes in support of the merger at the shareholders’ meeting on July 17.

Given that Elliott has convinced many foreign investors that blocking the merger will bring higher returns, the game appears more favorable for the U.S. hedge fund, he said. Kim predicted Elliott will likely secure a 26.7 percent voting share from its allies, against Samsung’s 19.8 percent friendly stake.

Samsung has insisted the merger is a lawful and fair decision that will boost the value and interest of Samsung C&T shareholders.