Samsung C&T Turns Tables on Elliott Management

The tug of war between Samsung C&T and U.S.-based hedge fund Elliott Management is escalating, surrounding the issue of a merger between Samsung C&T and Cheil Industries.

On June 9, Elliott Management, the third-largest shareholder in Samsung C&T, filed for an injunction against a shareholders’ meeting resolution with the Seoul Central District Court, opposing the merger.

On the following day, Samsung C&T announced that it would sell 100 percent of its 8.99 million treasury common stocks, equivalent to a shareholding ratio of 5.76 percent, to KCC Corporation. This is because no voting rights can be exercised at a shareholders’ meeting with treasury stocks. KCC's shares in Samsung C&T rose to 5.79 percent. Since KCC favors the merger, it has become a white knight for the Samsung Group.

Samsung C&T turned the tables with this move. According to the current rules, the merger is allowed when at least two-thirds of the attending shareholders and at least one-third of the issued securities are in favor. The Samsung Group has obtained 19.69 percent friendly shares, including those of Samsung SDI (7.39 percent), Samsung Fire & Marine Insurance (4.79 percent), Chairman Lee Kun-hee (1.41 percent) and KCC (5.79 percent). Elliott Management is expected to add the minority shareholders’ 0.43 percent shares to its 7.12 percent, which will equal 9.95 percent when those of the Dutch All Pension Group (APG, 0.35 percent) and Ilsung Pharmaceuticals (2.05 percent) are added.

The remaining variables are the National Pension Service (9.92 percent), foreign shareholders (34.02 percent), and the other minority shareholders. They have the casting vote and nothing can be said for sure yet. As of now, the foreign investors are expected to side with Elliott Management, while domestic pension funds and asset management firms are predicted to take Samsung C&T's side.

Under the circumstances, industry insiders are regarding June 11 as the first point in time when they can find out whether Elliott Management will eat and run. According to them, Elliott Management is likely to dispose of its shares, take the profits, and leave on June 11 or immediately after that day if what it aims at is short-term profits.