Activist Investor Takes Aim at Samsung’s Merger Plans

Samsung Group’s restructuring plans have run into opposition as Elliot Associates, the US Hedge fund attempts to block the merger of the two important affiliates of the sprawling conglomerate. Last week, construction company Samsung C&T announced that it had agreed with Chiel Industries to be taken over as Lee Jae-yong, the hair apparent and vice-chairman of Samsung Electronics is the major shareholder. The move was viewed by analysts as part of efforts made to ensure that the family still controls the group even after the death of Chairman Lee Kun-hee. The 73-year old chairman has been bedridden since May 2014 when he suffered a heart attack.

On Thursday, Elliot said that Samsung C&T is being significantly undervalued because of the proposed deal and the terms outlined in it aren’t fair and aren’t in the best interest of the shareholders of Samsung C&T. A regulatory filing has been made by Elliot stating that it has increased its share in Samsung C&T from below the 5% disclosure threshold to 7.1%. The merger agreement had been announced the previous week, which highlighted that each share of Samsung C&T would be exchanged for 0.35 of a share in Cheil Industries and the name of the acquired company will be taken.

On Thursday, Samsung C&T said that the purpose of the deal was to increase the value for shareholders and also giving the company’s value a boost. It also said that the South Korean regulations had been followed for deciding the merger ratio. It was based on the stock price of the firms in the month when the deal was made and is a stark contrast to the performance of the firms in the past couple of months. Interests of Cheil Industries range from fashion to theme parks and also a construction business that mostly serves affiliates of Samsung.

The shares of the firm have soared since its IPO in December and their value is now five times the net assets of the company. Samsung C&T, on the other hand, is a leading South Korean construction form, which headed the construction of the construction of the tallest building of the world in Dubai and its market capitalization is quite low as opposed to its book value. According to analysts, the divergence partly occurred because of the merger news as some investors had assumed that favorable terms would be given to Lee Jae-yong.

Even though the founding family has relatively small direct holdings, they have still managed to maintain control via a complex system of cross-shareholding between the 74 businesses that make up the conglomerate. The company that would be formed as a result of the merger would take on the 4.1% stake of Samsung C&T in Samsung Electronics, which is the group’s flagship. It would still remain in control of the Lee family with about a 30% stake. There was a 10% rise in the share price of Samsung C&T while a 5% boost was seen in share price of Cheil Industries after the news hit. 

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