Value Argument
Elliott Associates, the U.S. activist hedge fund, stepped up its offensive against the Samsung Group's move to merge Samsung C&T and Cheil Industries on June 18, demanding that the merger be carried out in such a way as to properly reflect the interests of relevant shareholders.
The hedge fund unveiled a 27-page online presentation on that day, reaffirming its opposition to the merger, while it again expressed support for the Samsung Group’s restructuring for a successful leadership transition in a move to appeal to shareholders.
“Elliott firmly believes that the proposed takeover by Cheil Industries of Samsung C&T at a merger ratio of 0.35 Cheil Industries shares for each Samsung C&T share is unlawful,” the fund said, adding, “[Elliott] is supportive of the restructuring move in connection with the potential succession of control over it, [but] the terms of the proposed takeover [are] significantly damaging to the interests of Samsung C&T's shareholders.”
Samsung C&T dismissed the presentation, saying, “Elliott is just repeating its claims, and the proposed merger is being carried out lawfully to maximize shareholder value as well as for the future of the firm.”
An official at Samsung Group says that it has no plans to negotiate with Elliott Associates over a possible change to the swap ratio between Samsung C&T and Cheil Industries.
“If Samsung revises the swap ratio for shareholders of C&T up, then other Samsung affiliates will surely become targets for other hedge funds,” he said, adding, “This is what Samsung's top management is worrying about while the management succession is under way inside Samsung.”
He went on to say, “Samsung recently hired Goldman Sachs and Credit Suisse,” adding, “Their key mission is to persuade leading and influential foreign brokerages and investment banks to back the original plan.”
Industry watchers said that Elliott, the third-largest shareholder in Samsung C&T, was speeding up efforts to gain support from shareholders ahead of the court hearings on its injunction request to block the merger that are scheduled for June 19. A ruling is expected to come out before the Samsung C&T shareholders’ meeting on July 17.
“Elliott knows the opposition of the restructuring doesn’t help elevate share prices and earn support from shareholders,” said an industry source, adding, “As the hedge fund focuses on the merger ratio, it has become clear that Elliott’s main purpose is taking higher profitability from share holdings.”
An analyst at a securities firm said that a failure of the merger would negatively affect both Samsung C&T’s share prices and Elliott’s profitability, arguing, “If the merger fails, the share prices are likely to drop to the previous level before the merger announcement.” He added that in the case, the owner's family is also likely to seek other ways to secure more Samsung Electronics shares, rather than pushing ahead with the merger.
The merger is subject to the approval of shareholders in both Samsung C&T and Cheil Industries. They will vote on the proposal on July 17, and a two-thirds majority is required to approve the deal.