Pensive Decision

 

It is expected that the National Pension Service (NPS), which holds the key to a merger between Samsung C&T and Cheil Industries, will decide on the exercise of its voting rights this week in its internal investment committee, so as not to repeat the time-consuming debates its voting rights committee went through during the merger between SK and SK C&C last month.

The voting rights committee was against SK’s merger last month, claiming that the merger ratio determined in favor of the owners, including Chairman Choi Tae-won, could affect the shareholder value, even though the ratio was duly calculated based on the Capital Market Consolidation Act. “The decision made by the voting rights committee, which is subject to controversy over the role and legal status, makes no sense when the presence of the expert group of the internal investment committee in the National Pension Fund Investment Office is taken into account,” Korea Economic Research Institute Vice Chairman Bae Sang-keun explained, adding, “Unlike the investment committee, the voting rights committee is likely to exceed its authority by being opposed again to a merger in compliance with the law in force, which has already been evidenced in the case of SK.”

At present, the NPS owns not only Samsung C&T shares but also Cheil Industries shares in quantity. Specifically, the shareholding ratios are estimated at 11.2 percent and approximately 5 percent, respectively. As of July 6, the aggregate market values of the companies are 16 trillion won (US$14 billion) and 24 trillion won (US$21 billion) each, which means the NPS has 1.16 trillion won (US$1.03 billion) and 1.2 trillion won (US$1.06 billion) in them. This implies that the NPS has to consider the shareholder values of both companies at the same time, unlike Elliot Management, which has only 7.12 percent of Samsung C&T stocks.

Another concern on the part of the NPS is that more and more foreign hedge funds are trying to take advantage of the vulnerability of the governance structures of Korean enterprises. For example, Elliot Management recently purchased 1 percent of Samsung SDI and Samsung Fire & Marine Insurance stocks each at 77.3 billion won (US$68.3 million) and 138 billion won (US$122 million). It is said that this constitutes a purposeful equity investment, as Samsung SDI and Samsung Fire & Marine Insurance are the largest shareholders of Samsung C&T, representing 7.18 percent and 4.65 percent of it, respectively. Likewise, Hermes announced on July 3 that it owns more than 5 percent of Samsung Fine Chemicals stocks, adding that the holding of the shares is simply for investment purposes.

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