A Seoul court turned down a request on Wednesday by a U.S. hedge fund to block a proposed merger of two Samsung Group units, lifting a legal hurdle for South Korea's top conglomerate to push ahead with the deal deemed crucial for its leadership transition.
Samsung C&T Corp., the construction and trading arm of Samsung Group, is facing opposition from Elliott Associates L.P. over an 8.9 trillion-won ($7.95 billion) takeover offer by Cheil Industries Inc., the group's de facto holding firm.
Elliott, led by activist billionaire Paul Singer, has claimed the merger plan undermines C&T shareholders' interests as it is based on unfair terms. It is the third-largest shareholder of the builder with a 7.12 percent stake.
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Choi Chi-hun, President of Samsung C&T Corporation (Yonhap) |
The Seoul Central District Court said the merger ratio, one of the key contentious issues raised by Elliot, cannot be seen as unjust as it was set in compliance with current law, which requires the ratio to be calculated based on current share prices.
"A company's value is not fixed and so is its share price as it is generally considered hard to predict," it said in a statement.
The hedge fund filed two injunctions early this month, asking the court to stop Samsung C&T's July 17 shareholder meeting on grounds that the merger ratio of 0.35 Cheil share for 1 C&T share is unfair since it grossly inflated Cheil's value while underrating that of C&T.
It has also sought to nullify the voting rights of KCC Corp., which recently increased its stake in the builder by acquiring C&T's treasury shares to support the takeover.
The court found that there was no evidence related to Elliott's claim that the deal only serves the interests of the founding Lee family at the cost of C&T shareholders' losses.
Samsung C&T shares have trended higher on the stock market since the announcement of the merger plan on May 26, which demonstrates that the market in part responded positively to the shakeup move, the court added.
The takeover will help Lee Jay-yong, the 47-year-old son of the group's patriarch Lee Kun-hee, tighten his grip on the group with 67 affiliates that span from electronics to finance, including crown jewel Samsung Electronics Co.
His family currently holds a combined 42.15 percent stake in Cheil Industries, meaning that the younger Lee will be put at the top of the group ownership structure once the merger is completed.
The heir apparent has been virtually running the group since his father was bedridden after suffering a heart attack in May last year.
The decision on Elliott's second injunction to ban KCC's vote will be delivered before the upcoming C&T shareholder meeting, the court added.
Market watchers said the court's dismissal raises the chances for Samsung to proceed with the merger toward a smooth succession. The verdict was also in line with analysts' predictions that the court siding with Elliott would be unlikely.
Nevertheless, Samsung hasn't completely fended off the challenge by the hedge fund, since the court is still to determine whether to validate the treasury share sale to KCC.
Samsung C&T hailed the court decision, saying "It's an outcome as fair as the merger that has been under way lawfully."
Elliott expressed regret over the ruling and looked forward to the court's next decision, saying it still believes the sale of C&T's own shares to its ally was an "inappropriate and unlawful" move in "blatant support of the proposed merger."
It said it will continue to seek ways to prevent the takeover and asked shareholders to do the same.
Ahead of the court decision, Samsung C&T chief Choi Chi-hun told reporters that the firm will be mindful of enhancing shareholder value for minority stakeholders and try to better communicate with them in future.
His comments follow a similar pledge by the two Samsung units. In an IR session on Tuesday, they promised the new entity will raise the dividend ratio to 30 percent from 21 percent in the next five years to boost shareholder value.
Regarding the merger, Choi said the company is continuing its efforts to convince more shareholders for support, but declined to elaborate on how many votes of approval it has secured so far.
"We'll find out through the result (at the shareholder meeting)."
Their dispute has led to a proxy fight, in which Samsung and Elliott have been eagerly asking shareholders to delegate their voting rights in support for each other's claims.
Samsung C&T needs to secure at least 47 percent of the vote to push ahead with the deal. The likely votes in favor of the merger, represented by other Samsung arms, KCC and the Lee family, stand at some 20 percent so far.
Institutional investors are estimated to own about 21.5 percent in the builder, including the National Pension Service, the state-run pension fund, which holds a swing vote with its 10.15 percent stake.
Foreigners, including Elliott's 7.12 percent, have a combined 33.61 percent stake in Samsung C&T.
Shares of Samsung C&T closed up 0.6 percent at 66,600 won on the Seoul bourse on Wednesday, with Cheil Industries gaining 1.97 percent to 181,000 won. The benchmark KOSPI climbed 1.14 percent. (Yonhap)
