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Elliott Management Stops Samsung C&T, Cheil Industries Merger
Outside Interference
Elliott Management Stops Samsung C&T, Cheil Industries Merger
  • By Jung Suk-yee
  • June 6, 2015, 04:00
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The Seoul High Court ruled on May 31 that the stock price of Samsung C&T had failed to reflect the value of the corporation in an objective way.
The Seoul High Court ruled on May 31 that the stock price of Samsung C&T had failed to reflect the value of the corporation in an objective way.

 

Elliott Management said on June 4 that it obtained 7.12 percent of Samsung C&T, and now various scenarios about the hedge fund’s intention are being discussed.

At present, the analysis saying the hedge fund is aimed at capital appreciation is considered persuasive in the market.

An anonymous senior source from the industry said that the foreign hedge fund may interrupt the reform process of South Korean corporations, then “eat and leave,” which may damage Samsung’s case.

In 2004, Hermes Investment Management (HIM), a British hedge fund, purchased a 5.0 percent share of Samsung C&T in March and intervened in the company’s management. In December of the same year, the hedge fund sold its shares of the company and obtained US$36.4 million of capital appreciation.

At the time, HIM requested Samsung C&T to sell all of its shares of Samsung Electronics, and then subsequently withdrew from South Korea.

Elliot Management may also do the same after the temporary shareholders' meeting that will be held on July 16, although it now says its purchase of the share is aimed at engaging in the company's management.

Some says that Elliot Management will be a second “Sovereign” case, although the possibility is low. Sovereign Asset Management (SAM), a global hedge fund, became the second larggest shareholder of SK Group in 2003 by obtaining a 14.99 percent share of the company. SAM then won the support of minority shareholders, obtaining their voting rights, and used this clout to request that Choi Tae-won, chairman of SK Group, step down, and the company pursue aggressive mergers and acquisitions (M&A). Choi Tae-won fortunately protected his management control, but SAM took billions of won of capital appreciation.

In accordance with this scenario, Elliot Management is expected to persuade the minority shareholders and foreign institutions to stop the launch of a merged Samsung C&T, and then request adjustment of the merger ratio of Cheil Industries and Samsung C&T in order to benefit from the latter. When the current merger rate of 1:0.35 is adjusted, it will weaken the dominance of Lee Jae-yong, the majority shareholder of Cheil Industries (23.2 percent) and vice chairman of Samsung C&T, and therefore strengthen Elliot Management’s influence.

Of course, it is also possible that Elliot Management’s stake will cause considerable impact. In the current situation, the minority shareholders or institutions have no reason to use their appraisal rights, by opposing the merger. Samsung C&T (ordinary shares) has appraisal rights valued at 57,234 won, which is about ten thousand won lower than today’s closing price, 69,500 won. That is, when opposing the merger, they can just sell the shares rather than requesting a purchase of shares.