Samsung Heavy, Engineering merger aborted

An employee walks into the main office of Samsung Heavy Industries in Seocho-dong, Seoul, Wednesday. The shipbuilder and its affiliate, Samsung Engineering, scrapped their merger plan as more shareholders than expected requested the companies buy back their shares in opposition to the plan. / Yonhap

By Lee Hyo-sik

Samsung Heavy Industries and Samsung Engineering have scrapped their merger plan as more shareholders than expected requested that the companies buy back their shares in opposition to the plan.

The companies announced Wednesday that they decided not to merge, adding that if they bought back shares from all the stakeholders who want to sell, they would have to spend too much money. That would aggravate their financial health and damage shareholder value, they said.

``We decided not to push ahead with the planned merger by reflecting shareholders’ opinions,’’ the companies said in a statement. ``We will carefully reexamine the matter after gathering opinions from shareholders and market participants. But we will continue to strengthen cooperation on off-shore plants and other areas of business.”

In September, Samsung Heavy and Samsung Engineering announced a merger as part of the group-wide restructuring. But since the announcement, company shares have been on a downward trend, falling below the prices at which both firms buy their stocks from shareholders.

Falling share prices prompted shareholders to sell their shares of the companies and purchase the stocks traded on the bourse.

Samsung Heavy said they would purchase their stocks at 27,003 won per share, and Samsung Engineering at 65,349 won apiece.

The stocks closed sharply lower, hit by the news that the merger plan collapsed.

Samsung Heavy closed at 23,450 won Wednesday, down 6.39 percent, with Samsung Engineering closing 53,600 won, down 9.31 percent.

Due to falling stocks prices, more shareholders than expected wanted to dispose of their shares during the share purchase period.

Samsung Heavy would have to pay 924 billion won for the stock purchase, slightly below a pre-set ceiling of 950 billion won. Samsung Engineering would have to spend 706 billion won to buy its shares, above the 410 billion won ceiling.

“If both companies want to become one, they have to pay combined 1.63 trillion won for the share purchase. The amount is much larger than expected, so we decided not to go ahead with the merger,’’ the companies said.

Among major shareholders, the National Pension Service (NPS), which holds a 5.91 percent stake in Samsung Heavy Industries and a 6.59 percent stake in Samsung Engineering, opposed the merger.

The state pension fund manager said it would request that both firms purchase its stakes.

Samsung Heavy Industries has incurred losses over several quarters because of the sluggish global shipbuilding market. Samsung Engineering has also been hit hard by declining demand for new buildings and offshore plants.