Analysts split over Samsung merger plan

Analysts are divided over the feasibility of Samsung Group's plan to merge its two key units, as the proposed merger deal faces a legal battle with a U.S. hedge fund trying to stop the move citing fairness of the deal and could entail huge costs, reports showed Tuesday.

Elliott Management has opposed the 8.9 trillion won ($7.96 billion) offer announced late last month by Cheil Industries Inc., the de facto holding company of Samsung Group, to buy construction arm Samsung C&T Corp. in an all-stock deal, saying it undervalues the builder's assets and is unfair to its shareholders.

The proposed merger is seen crucial for a smooth succession process for Lee Jay-yong, the only son of Lee Kun-hee, the patriarch of the country's largest conglomerate, to help consolidate his grip on the group whose businesses span from electronics to finance.

Elliott, the third-largest shareholder in Samsung C&T, has filed injunctions with a Seoul court seeking to block the merger.

Market analysts here offered a contrasting view on whether Samsung will be able to push ahead with its original merger plan.

A report by Eugene Investment & Securities Co. said the merger will go ahead as few shareholders will take the risk of huge losses expected to incur if the deal is scuttled.

"There's little chance that the National Pension Service, who's holding about 1 trillion won in Cheil, will stand against the takeover or give up its vote. It's so obvious that Cheil shares will plummet if the deal's thwarted," Han Byung-hwa, said in the report.

He also pointed out that the national pension fund, which manages taxpayers' money, won't side with foreign capital. The NPS is estimated to hold a 10.1 percent stake in Samsung C&T. The builder will likely secure allies representing about 40 percent of the company, including major institutional investors here, according to Han.

"Samsung Group won't give up the merger since carrying out the process for a leadership change is a more important task for them than dealing with risks from the battle with Elliott."

Kyobo Securities Co. also issued a report giving a similar view, as it is doubtful that the 26.7 percent represented by offshore investors will accede to Elliott's move.

In a report issued on Monday, Hanwha Investment & Securities Co., however, predicted Samsung may nix its proposed merger plan since the merger is expected to be spoiled by Elliott's intervention.

Kim Chul-beom, the chief researcher at Hanwha Investment, said it will not be easy for Samsung to win enough votes in support of the merger at the next shareholders meeting on July 17.

He gave weight to the possibility that Elliott may take the dispute to an international lawsuit, which will result in massive costs for Samsung, amounting to at least 2-3 trillion won.

Given that Elliott has well convinced foreigners with extra profits from blocking the merger, the game will be more favorable for the U.S. hedge fund, he said. Kim predicted Elliott will likely secure 26.7 percent from allies, while Samsung will have about 19.8 percent.

Samsung strongly refuted the prediction later, accusing the brokerage house of stoking up market uncertainties based on false premises.

The conglomerate has insisted the merger bid is a lawful and fair decision that will boost the value and interest of Samsung C&T shareholders. (Yonhap)