On Friday, the proposed merger of two companies in Samsung Group worth $8 million came under attack from two directions; a court action was filed against the deal by an activist hedge fund and shareholders were told to oppose the merger by a shareholder advisory group. In South Korea, shareholder activism is quite a rare case, but it was seen when Elliot Associates, the hedge fund decided to escalate its battle to block the merger deal by filing an appeal against a ruling made by a South Korean court as a bid to prevent a key shareholder vote concerning the deal.
Apart from that, Institutional Shareholder Service (ISS), an advisory group, gave recommendations to the Samsung C&T Corp investors to vote against the all-stock takeover offer that was made by Cheil Industries Inc., a sister company. According to some analysts and investors, the Cheil-Samsung C&T merger is essential for consolidating different stakes in top affiliates of the huge family-run Samsung conglomerate ahead of an upcoming and imminent leadership succession. However, as per ISS, the offer made by Samsung Group’s de facto holding company, Cheil Industries significantly values Samsung C&T. ISS also said that the potential synergies through the merger that were being touted by the two companies weren’t enough compensation.
The advisor Glass Lewis & Co had also recommended that the deal be rejected. These recommendations could be helpful for Elliot in gathering more supporters in its task to have the deal voted down at the shareholder meeting of Samsung C&T that will be held on July 17th. Analysts said that this could lead to a tough fight for Samsung. Legal challenges have been launched by Elliot Associates, which is the third-largest shareholder in Samsung C&T with a 7.1% stake and is also calling on other investors for rejecting the deal. Samsung C&T and Cheil are also lobbying for gaining investor support.
They have promised a better structure in corporate governance and improved shareholder returns for the post-merger company. In response to the report by ISS, Samsung C&T said in a statement that the merger served the best interest of the company. As for Elliot Associates, they said that their concerns were validated by the ISS report. Earlier on Friday, the fund appealed against a decision taken by the South Korean court for rejecting an injunction request directed at blocking the Samsung C&T shareholders vote on the deal on July 17th.
Elliot said that the deal should be rejected by the C&T investors and they should give some thought to replacing some board members with others who may be better able to represent their interests. Meanwhile, the National Pension Service of South Korea, the biggest shareholder of Samsung C&T increased their holding in the firm in June by 1.7% to about 11.9%. This boosted the influence they would have on the outcome of the proposed deal. In order to get approval for the proposal, one-third of all shares and two-thirds of those present have to say yes or else it will fall through.