Cheil Industries vows higher dividends amid merger dispute

Cheil Industries announced Tuesday that it will increase dividend payouts to investors in an apparent attempt to win over stakeholders’ approval of its proposed merger with Samsung C&T.

In a bid to sway shareholders, Cheil Industries, the de facto holding company of Samsung Group, called an impromptu investor relations session in Seoul to announce that the payout ratio would gradually be raised to 30 percent by 2020 from 21 percent in 2014.
 

Cheil officials added that the merged entity will have a separate governance committee and a unit committed to corporate social responsibilities.

The plan to merge the two key Samsung units has faced opposition from the U.S.-based hedge fund Elliott Associates. The hedge fund holds 7.12 percent of Samsung C&T, the group’s construction and trading arm. Elliott claims that the merger is unlawful and that the merger ratio of 1 to 0.35 in favor of Cheil Industries is detrimental to the construction firm’s shareholders.

Elliott is the third-largest stakeholder of Samsung C&T and some market watchers expect the U.S.-based Institutional Shareholder Services to take a negative stance on the merger.

For their part, Samsung C&T and Cheil Industries, which would effectively become the holdings company for Samsung Group if the merger is realized, say that the deal is not illegal and would allow the company to achieve sustained growth.

According to the companies’ plans, the merged firm would drive to raise annual revenues to 60 trillion won ($53.7 billion) by 2020 and become a “global business partner and lifestyle innovator.”

Saying that Cheil Industries needs “investment, time and effort” in establishing the infrastructure and systems to become a “global company,” Cheil’s fashion brand CEO Yoon Joo-hwa said the proposed merger would come as a boost for the company.

Another company CEO also dismissed Elliott’s claim of an “unfair” calculation of the merger ratio, saying it was based on a “rational decision.”

“There is the view that Samsung C&T has been undervalued, while Cheil is overvalued, but considering Samsung C&T’s long-term growth potential, (the ratio) is according to market evaluation,” Cheil co-CEO Kim Bong-young said.

He added that Cheil Industries’ value in relation to Samsung C&T is also boosted by the fact that the former holds 46 percent of stakes in Samsung Bioepis and that it is on the top of the group’s shareholding structure.

By Suk Gee-hyun (monicasuk@heraldcorp.com)