On July 5, Samsung C&T called into question the reliability of the Institutional Shareholder Services’ report on a merger between Cheil Industries and itself. “The report has illogicalities and subjectivities in many aspects, and some parts of the report cite incorrect information provided by Elliot Management without sufficient examination, which can confuse shareholders,” it claimed.
“According to the report, the market response to the merger is so positive that the stock prices of Samsung C&T and Cheil Industries rose as much as 14.8 percent and 15 percent, respectively,” it said, adding, “This implies that even the Institutional Shareholder Services itself is admitting the high expectations for the synergy that can follow the merger. But the report did not reflect the value of the biobusiness of the new company, and the advantages Samsung C&T can have after the merger as the de facto holding company of the Samsung Group.”
It continued to say that the report lacked objectivity and a rational explanation in telling its readers to be opposed to the merger, as the stock price of Samsung C&T would rise someday in the future, even though the price is expected to drop by 22.6 percent when the planned merger is canceled.
“The ISS claimed that Samsung C&T was undervalued by 50 percent and Cheil Industries was overvalued by 41 percent, but the numbers were based on subjective and misleading evaluation, which is evidenced by the fact that the value of the bio business of Cheil Industries is estimated at 7.5 trillion won [US$6.7 billion] by market participants and just 1.5 trillion won [US$1.3 billion] by the ISS,” it criticized, continuing, “Besides, the report did not take into account the value of the real estate properties owned by Cheil Industries, which is just one example of the basic elements the ISS missed out on in its report.”
It also explained that the merger ratio of 1:0.95 recommended by the ISS is impractical by any means. “A merger ratio should be determined based on Korean law, as admitted by the ISS itself, but it suggested the ill-founded ratio while mentioning 110,000 won [US$97.79] per share, which has never reached, as the target share price for us,” Samsung C&T emphasized. According to it, the ISS did not consider the discount of the shares owned by its listed subsidiaries and overvalued the construction and general trading divisions to depart from the reality.
“Samsung C&T is planning to become even friendlier to shareholders and carry out policy for the improvement of its corporate governance structure after the merger, but the ISS did not take this part into consideration at all,” it added, continuing, “The fact that the report is far from reliable is also evidenced in that the name of a company that has nothing to do with the merger appears in it, and the English name of a major shareholder is spelled in three different ways.”