Merge of Construction Units
As Samsung Engineering has decided to increase capital by issuing new shares, expectations are growing for the merger with Samsung Heavy Industries. Some say that the group reappointed both presidents in the recent annual personnel reshuffle in order to lay the groundwork for the merger.
According to industry sources on Dec. 8, there is a possibility that Samsung Engineering will merge with Samsung Heavy Industries as it announced to increase capital by issuing new shares worth 1.2 trillion won (US$1.02 billion). Last year, the two companies pursued the merger but failed to do so due to opposition from shareholders.
Samsung Engineering’s capital impairment was the big obstacle to the merger with Samsung Heavy Industries. When the company, which reported an operating loss of 1.5 trillion won (US$1.27 billion) in the third quarter, succeeds in the paid-in capital increase and the sale of its main office building, it can recover from the status of the capital impairment and prevent its delisting. It will help persuading shareholders who oppose the merger.
The fact that the two companies have high expectations on synergy effects from the merger also raises a possibility to seek the merger again.
Samsung Heavy Industries President Park Dae-young explained the background to pursue the merger, saying, “Based on the world’s best production facilities, production experiences and technical professionals on the land and sea of both companies, we will become a new total plant company with the world’s best competitiveness.” Samsung Engineering President Park Joong-heum also said, “Combining the two companies’ professional competencies and technologies in the plant and marine shipbuilding industry sectors, respectively, we will become a total solution company that meet various needs of customers.”
With President Park Dae-young of Samsung Heavy Industries and President Park Joong-heum of Samsung Engineering remaining in office from personnel change in the annual personnel reshuffle announced on Dec. 1, both companies are more likely to be merged.
The “One-Shot Act,” which was proposed in July, is another variable. Samsung Heavy Industries and Samsung Engineering decided to cancel the merger in Nov. last year as shareholders, including the National Pension Service, exercised their rights to request the merging companies to buy back their shares at the monthly shareholders’ meeting.
Before the merger, the share prices of both Samsung Heavy and Samsung Engineering fell short of the price to exercise the stock put option. Then, many shareholders exercised their rights to request the merging companies to buy back their shares. As the number of requests was higher than expected, the two companies cancelled the merger.
The One-Shot Act shortens the period that shareholders, who oppose business reshuffle, can request the appraisal rights to the company from 20 days to 10 days after the shareholders’ meeting. With the shortened period, it is designed to prevent excessive appraisal rights exercise. Accordingly, it will help both companies merge.
In this regard, a company official said, “We haven’t considered pursuing the merger again. At the moment, we are planning to focus on the rapid management normalization through the paid-in capital increase.”