Paul `the frivolous' Singer
By Kim Jae-won
Experts here said Thursday that Elliott Associates is resorting to legal action to boost its case against the merger between two Samsung affiliates.
However, they believe the U.S. hedge fund’s efforts will prove to be frivolous, as the judiciary is not likely to accept its tactics, saying there is no problem with the current merger between Samsung C&T and Cheil Industries.
National University of Singapore professor Shin Jang-sup said the two companies are not violating the law or hurting shareholders’ interests while trying to merge with a ratio of 35 Cheil Industries shares to 100 Samsung C&T shares based on their stock prices.
“It is more appropriate that the standard for a merger is based on stock price than asset value, if we assume that the stock market works effectively,” said Shin in an e-mail interview with The Korea Times.
The Cambridge-educated economist said that venture companies in the U.S. also merge using stock prices, saying they all should be sued if Elliott’s argument is right.
A mergers and acquisitions attorney from a leading local law firm agreed with Shin, saying the ratio was legitimate according to Korean Business Law.
“Korean law regulates that the merger ratio is based on the stock price of both companies. Therefore, I don’t think there is anything wrong with the two companies agreeing to merge using the ratio based on their stock prices,” said the legal expert asking not to be identified.
Their comments came a few hours after Elliott announced it had applied for urgent injunctions against Samsung C&T, its directors and KCC, a building materials supplier, seeking to prevent treasury shares from becoming shares which can be used in the proposed takeover.
On Wednesday, Samsung C&T said it sold its 5.76 percent stake, or 8.99 million shares, to KCC for 674.3 billion won to complete its merger smoothly by expanding friendly investors. By law, a company’s treasury shares have no voting rights at a shareholders’ meeting.
Samsung C&T’s sale of treasury shares to KCC would raise the portion of merger-friendly shares from at least 13.99 percent to 19.75 percent. The proposed merger must win approval from shareholders with two-thirds of the voting rights and a third of outstanding shares in order to pass. The shareholder meeting is scheduled for July 17.
Elliott accused the boards of Samsung C&T of forcing through the takeover proposal by selling the treasury shares, describing it as a “desperate and unlawful attempt.”
“This unlawful takeover proposal represents an effort to divert, without any compensation, more than 58 percent (equivalent to approximately 7.85 trillion won) of Samsung C&T’s net assets out of the hands of the shareholders of Samsung C&T and into the hands of Cheil Industries’ shareholders,” said the fund in a statement.
Meanwhile, retail and foreign investors have moved to join Elliott’s side, making the war between the two parties even more unpredictable.
Earlier this week, a Korean group of retail investors agreed to lend support to Elliott, with their shares taking up 0.43 percent of the total. The Netherlands-based pension fund APG, which holds a 0.35 percent stake, has also reportedly said it is against the merger.