Samsung merger plan failure to harm 'ants'

By Kim Jae-won

Individual shareholders of Samsung C&T are expected to suffer losses if the builder’s merger with Cheil Industries fails to be approved at a shareholders’ meeting Friday, analysts said Tuesday.

Retail investors, known as “ants” here, have sway in the vote on the proposed merger which is opposed by the American hedge fund Elliott Associates. The ants hold a combined 24 percent of Samsung C&T.

Analysts said Samsung C&T share prices would take a severe beating if the merger fails to get passed at the meeting.

Baek Kwang-je, an analyst at Kyobo Securities, said individual shareholders of Samsung C&T will be hit the most unless shareholders approve the deal.

“The stock price will fall back to the level before the merger was announced, dealing the biggest blow to individual investors,” said Baek in a report. “Hedge funds might have taken steps to protect themselves against a possible fall in share prices, but most retail investors have no other option but to suffer losses.”

Samsung C&T shares rose as high as 76,100 won in early June from 54,300 won after the merger was made known the public in late May. They were trading at 65,200 won as of Tuesday afternoon.

Baeks said hedge funds may have safety nets in case of the collapse of the merger, including sales of futures on Samsung C&T shares, to avoid losses.

Based on the assumption, he said hedge funds will not buy up Samsung C&T shares, even if the merger fails, leaving minority shareholders vulnerable.

All eyes are on the shareholders’ meeting of Samsung C&T as they are split over the plan.

The company has mobilized all of its resources to persuade shareholders to endorse the deal, including ads in newspapers and visiting shareholders face to face.

Samsung C&T has said that the merger with Cheil, the de-facto holding company of Samsung Group, will create huge synergy and ultimately boost shareholder value.

However, Elliott, which owns a 7.12 percent stake in the company, has argued the stock swap ratio of 100 Cheil shares to 35 C&T shares is neither fair nor in the interests of Samsung C&T shareholders. Elliott said that the ratio should be changed to one Cheil share to 1.6 Samsung C&T share, considering Samsung C&T has more than a 4 percent stake in Samsung Electronics, the group’s flagship affiliate.

Market watchers said foreign investors hold the key in the vote. Foreign investors, excluding Elliott, own a combined 26.41 percent stake in Samsung C&T.

Among them, Asian investors, including Singapore’s sovereign wealth fund, own a combined 5.29 percent stake in the company, which will be crucial for Samsung to get an approval for the merger. They have yet to show their stance over the matter.