Samsung C&T surges after Elliott's intervention

Samsung Electronics Vice Chairman Lee Jae-yong needs to further consolidate his control of Samsung Group in the process of management succession. Samsung Group faces challenges from foreign investors who oppose the proposed merger between Samsung C&T and Cheil Industries. / Yonhap

By Kim Jae-won

Samsung C&T shares extended steep gains for two straight days on Friday after a U.S. activist hedge fund’s purchase of a major stake stoked speculation that the fund and Samsung Group may compete to raise their stakes in the company.

Analysts said foreign investors heavily bought the stock.

Samsung C&T closed up 9.35 percent, or 6,500 won, at 76,000 won, Friday, following a 10.32 percent gain the previous day. The benchmark KOSPI closed down 0.12 percent at 2,070.31.

The stock’s gain came after Elliott Associates said Thursday that it had acquired a 7.12 percent stake in Samsung C&T to have a say in the company’s management. It became the company’s third-largest shareholder. The fund made it clear that it opposes the proposed merger between Samsung C&T and Cheil Industries, the group’s fashion and resort business arm.

The fund’s opposition ignited speculation that it and Samsung Group may compete to increase stakes in the company.

Analysts said the stock’s steep gains reflected anticipation that Samsung might take some steps to fend off the hedge fund’s intervention in management.

Samsung C&T is drawing investor attraction because it has risen to the center of corporate governance of the nation’s largest business group.

“We encourage investors to buy shares of Samsung C&T,” said Kyobo Securities in a report. “Its status has been transformed from an ugly duckling to a beautiful swan thanks to its merger plan with Cheil Industries.”

Kyobo set its target price at 82,000 won.

Cho Yoon-ho, an analyst at Dongbu Securities, said, “The value of stakes Samsung C&T owns in listed companies is more than 13 trillion won, far higher than its market cap. The excessive gap means that it is attractive enough to buy.”

He set the target price at 80,000 won.

Analysts said the U.S. fund’s plan to intervene in Samsung C&T’s management would affect the direction of the stock because Elliott opposed the merger.

“Elliott believes that Cheil Industries’ proposed takeover of Samsung C&T significantly undervalues Samsung C&T and that the terms are neither fair nor in the best interests of Samsung C&T’s shareholders,” the hedge fund said.

Elliot previously held 4.9 percent of Samsung C&T and bought an additional 2.2 percent Wednesday to emerge as the No. 3 shareholder after the state-run National Pension Service (NPS) and sister company Samsung SDI, according to the financial regulator. Elliott manages two funds, Elliott Associates and Elliott International, with assets under management totaling more than $26 billion.

The fund’s defiant move drew keen attention because a previous attempt at a merger between Samsung Heavy Industries and Samsung Engineering failed last year after opposing stakeholders sought to sell more than 1.5 trillion won of stock back to the company.