By Lee Hyo-sik
The U.S. hedge fund that recently acquired a 7.12 percent stake in Samsung Construction & Trade (C&T) says it opposes the firm’s planned merger with Cheil Industries.
Elliott Management said the merger is not in the best interests of Samsung C&T shareholders, adding that it will voice its opinions to influence company management.
Most analysts here say Elliott’s surprise move is largely designed to drive up the Samsung C&T share price so it can realize a huge capital gain later.
This tactic has been used by several Western investment funds such as Sovereign and Hermes, which acquired a large chunk of shares in Korean companies with weak corporate governance to make short-term capital gains.
According Elliott’s PR agency here, the fund spent 706.5 billion won to acquire the 7.12 percent stake in Samsung C&T, or 63,500 won a share.
The hedge fund was founded in 1977 and manages about $26 billion. It filed a disclosure report with the Financial Supervisory Service stating that it purchased the stock with intent to involve itself in the company’s management.
“Elliott believes that Cheil Industries’ proposed takeover of Samsung C&T significantly undervalues the latter and that the terms are neither fair to, nor in the best interests of, Samsung C&T’s shareholders,” the fund said.
Its remarks indicate it will vote against the planned merger with Cheil Industries at the shareholders’ meeting.
On the news, shares of the trading and construction arm of Samsung Group soared 10.32 percent to close at 69,500 won Thursday.
On May 25, Samsung C&T said it would merge with Cheil Industries ― a fashion, resort and food services unit of Samsung Group ― by Sept. 1.
Cheil Industries would acquire the group’s construction unit by offering 0.35 new shares for every Samsung C&T share. Cheil would issue new shares and allocate them to Samsung C&T shareholders in accordance with the merger ratio.
In response to Elliott’s latest stock purchase, Samsung C&T said Thursday that it has no intention of changing the terms of the merger, stressing that the merger ratio was set in accordance with the Capital Market Act.
“We set the ratio in line with the relevant laws,” a Samsung C&T spokesman said. “We will always do our best to increase shareholder value. We believe the integration with Cheil Industries is in the best interests of our shareholders because it will significantly boost company value.”
Samsung C&T has a 13.56 percent own stake, while Samsung SDI and Samsung Nonlife Insurance hold 7.18 percent and 4.65 percent, respectively. The National Pension Service has a 9.98 percent stake.
The head of research at a Seoul-based securities firm speculated that Elliott’s intent is to realize capital gains from trading Samsung C&T shares.
“I don’t think the U.S. fund is even interested in whether Samsung C&T merges with Cheil or not,” said the analyst, who declined to be named. “Like other foreign investment funds in the past, it is only interested in making quick profits. When Samsung C&T stocks rise to a certain level, it will unload its holdings.”
In March 2014, Britain-based Hermes Investment bought a 5 percent stake in Samsung C&T, saying it would get involved in the management. The fund asked the company to sell its stake in Samsung Electronics and take other measures to boost its share price.
Nine months later, it sold its entire stake, realizing a $36.4 million capital gain.