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The National Pension Service (NPS) is expected to agree to a merger between Samsung C&T and Cheil Industries at the extraordinary shareholders’ meeting scheduled for July 17. Then, the ratio of the shareholders in favor of the merger will be 30.99 percent: 13.82 percent owned by Samsung C&T, 5.96 percent by KCC, and 11.21 percent by the NPS. They are most likely to be opposed by only 11.42 percent of shareholders, which is divided into Elliott Management’s 7.12 percent, Ilsung Pharmaceuticals’ 2.1 percent, and Mason Capital Management’s 2.2 percent.

At least two-thirds of the shareholders attending the meeting have to approve of the merger if it is to be done. Assuming an attendance rate of 80 percent in view of the keen interest in the issue, Samsung has to have 53.3 percent of total shareholder votes on their side. This means that it has to win over approximately 22 percent more friendly shares. At present, the casting votes are held by domestic institutional investors (11.05 percent), foreign stockholders excluding Elliott Management (26.41 percent), and minority shareholders (24.43 percent). Expert consensus is that the domestic institutional investors will side with Samsung.
 
In the meantime, Elliott Management is expected to file a lawsuit once the merger is voted through. The litigation may take the form of an investor-state dispute (ISD) if the NPS chooses to side with Samsung. Then it is likely to take years until the final ruling, and Elliott Management may take its profits and leave during that time. In contrast, the American hedge fund is unlikely to leave immediately after provisional approval. It acquired Samsung C&T shares in quantity on June 3 at a unit price of 63,560 won (US$56.23) but the closing price as of July 10 was already 64,400 won (US$56,97), which is translated into a yield of just 1.3 percent.

If the foreign and minority shareholders are opposed to the merger in accordance with the Institutional Shareholder Services’ report, Elliott Management could intervene more and more in the management of Samsung C&T with tall orders. Samsung C&T recently declared that it would not retry if the merger failed at this time, making Elliott Management more desperate. The hedge fund’s initial plan for that case was to raise the stock price of Samsung C&T and increase its profits by adjusting the rate of merger, but the stock price could fall if Samsung gave up on business consolidation.

“If Elliott Management was driven into a corner, it could demand that the Samsung Electronics shares owned by Samsung C&T be subjected to a dividend in kind, while intervening for a corporate spin-off and large-scale restructuring, so as to eat and run after a temporary rise in stock price,” an industry insider explained.

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