Samsung gets gov't backing in Elliott fight

By Kim Yoo-chul

Samsung Securities CEO Yoon Yong-am said top Samsung has no plans to change the 1:0.35 share swap ratio between Cheil Industries and Samsung C&T.

"As the swap ratio reflects the current value of Samsung C&T and Cheil Industries, Samsung has no plans to change the fixed exchange ratio," Yoon told reporters on the sidelines of his participation in Wednesday's weekly regular meeting with presidents of Samsung Group affiliates in the Samsung Seocho Tower, southern Seoul.

Yoon said Samsung C&T management talked with the Institutional Shareholder Services (ISS), a proxy advisory firm for hedge and mutual funds that has influence over foreign investors, about the issue throughout a conference call.

"Talks with ISS were constructive. Samsung C&T delivered its position about the proposed takeover and is awaiting an answer ISS," Yoon said.

Samsung C&T explained why the swap ratio was set and stressed the proposed takeover will be beneficial to shareholders of both firms as a series of new business plans will be forthcoming if the deal closes, said Yoon.

Elliott Associates, the third-largest shareholder of Samsung C&T, claimed that the ratio was against the best interests of Samsung C&T shareholders and asked Samsung to reset the ratio as 1:1.16.

"The ratio was set according to local regulations. No one can change this. Given the situation, this is the right time for the merger," Yoon said.

He said ISS is expected to release its report on the merger on July 2 at the earliest.

"But it's possible there will be a delay of two or three days."

The Seoul Central District Court will rule by July 1 on Elliott's injunction request to block a Samsung C&T shareholder vote on the merger.

As the shareholder meeting is set for July 17, Samsung Future Strategy Office, a group control tower, has teamed up with all Samsung affiliates to defeat the U.S. hedge fund in a vote.

Local experts also said the swap ratio was fair given the stock prices of Samsung C&T and Cheil Industries.

"When a merger between listed companies happens, the current stock price is a key benchmark to judge fair value of the affected companies," Chun Kyung-hoon, a professor at the Seoul National University's Law School, said.

By 2014, Samsung C&T's total assets reached 8.63 trillion won, while that of Cheil Industries was 22.07 trillion won, according to the data from the Financial Supervisory Service, as C&T was in trouble hit by a slump in the construction business.

On a related note, the Fair Trade Commission (FTC) said the proposed takeover will be approved as this issue has no legal problems. "The Cheil Industries-C&T deal will be okayed," said an official.

Elliott Associates said the acquisition falls squarely within the prohibition under Article 9-2 of the Fair Trade Act.

If permitted to rely on a potentially applicable exemption, Samsung Fire & Marine, Samsung SDI and Samsung Electro-Mechanics would be required to dispose of their collective stakes in the merged entity, but this would create a substantial share price overhang on the merged entity stock, according to Elliott.

As the fights heat up, Samsung C&T plans to hire Weber Shandwick, a public relations consultancy, to appeal to foreign investors, which have yet to decide their position on the issue.

"As Samsung C&T needs more support from foreign investors, the company plans to hire Weber Shandwick, a local affiliate of Inter Public Group (IPG), to persuade them utilizing IPG's global network," said an official.

A spokesman at Weber in Seoul declined to comment.

IPG, established in 1960, is headquartered in New York and it was previously attacked by Elliott and accepted Elliott's requests to name two Elliott-named board members. Elliott also has 6.7 percent stakes in IPG.