Samsung all-out to bring allies on board

By Kim Yoo-chul

Samsung Group is going all-out to gather as many friendly shareholders as possible to vote down Elliott Associates’ attack against the proposed merger between Samsung C&T and Cheil Industries.

Samsung C&T’s sale of treasury shares to KCC, a construction materials supplier, has put Samsung in a better position, hedge fund managers and analysts said Thursday.

The company sold its entire 5.8 percent treasury stock to KCC, raising friendly shareholding to 19.88 percent against Elliot, which holds a 7.1 percent stake. The Samsung C&T-Cheil Industries deal will be decided on at a shareholders' meeting July 17.

“If KCC and the National Pension Service (NPS), which holds a 9.92 percent stake in Samsung C&T, plus other Samsung subsidiaries vote in favor, this will already be almost 30 percent in favor. Assume 60 percent of shareholders turn out at the meeting, they only need an additional 10 percent of other voters to vote in favor to get it through. I agree that it is going to be difficult for Elliott to do much,” said Gerald Foo, an analyst at Market Securities in London, in an e-mail interview.

Foo said Elliott thinks that the merger terms are unfair.

As expected, Elliot called the Samsung C&T's decision “unlawful” and filed a court injunction against the Samsung affiliate to stop it from selling treasury shares to KCC.

A senior manager from a Europe-based hedge fund firm, which manages billions of dollars in assets, said that Elliot doesn't want to block the deal as its real intention was to get a better swap ratio share in the merger deal.

Under the merger terms, every 35 Cheil Industries shares will be exchanged for 100 Samsung C&T share. Elliot insists that the value of Samsung C&T has been deliberately underestimated.

“Elliott is an activist fund which has been involved many times in similar situations. I suspect they aren't opposed to the merger; they just want a better price. They know this is the key for the family, so they figure they can negotiate better terms. This is their game,” the manager said in a separate e-mail interview, asking not to be identified.

“I do think Elliot will agree to vote its shares in favor of management and the deal if the consideration is revised upward. They just want more money,” a hedge fund manager from a U.S.-based asset management firm said by telephone.

They stressed the NPS holds the key.

“If they back this deal, maybe Elliott won't have a leg to stand on. If they side with Elliott, it seems that the deal will have to revised for a higher price,” he said.

Samsung has created a task force only to deal with Elliott issues. Top management at Samsung C&T holds key meetings with foreign investors to get support.

“Samsung C&T CEO Choi Chi-hoon held a briefing session with major foreign investors during his recent trip to Hong Kong. At that meeting, Choi promised to implement strong shareholder-return policies after the deal closes,” said an Samsung official.