As the National Pension Service is pushed to a corner every day by the prosecution's investigation into a merger process of Samsung C&T and Cheil Industries in July last year, the market is paying a lot of attention to the future moves of the US hedge fund Elliot Management, which opposed the merger of the two companies at that time.
Elliot is known to have sold off all of its equities after losing an equity war in a shareholders' meeting about the marriage of Samsung C&T and Cheil Industries last year. However, some experts say that Elliot is able to resume their strikes at any time by maintaining a stake of less than 5 percent not subject to a public disclosure obligation.
According to the financial investment industry on November 24, Elliot's first card against the Samsung Group is to attain their demands by reigniting a recent controversy surrounding the merger at a general shareholders’ meeting of Samsung C&T to be held in March next year. Shareholders with stakes of more than 0.5 percent may exercise the right to demand the dismissal of directors and make proposals according to the Commercial Act.
Elliot that voted against the merger of Cheil Industries and Samsung C&T last year, sold off all of its remaining equities in Samsung C&T which the company bought before and after the announcement of the merger. However, the market is focusing on a possibility that Elliot bought shares of Samsung C&T under the stake of 5 percent. There was a precedent in which Elliot had been keeping a low profile with a stake of less than five percent and suddenly emerged as a major shareholder by purchasing stocks in large numbers shortly before the merger.
In October, as a shareholder, Elliot sent a letter proposing to Samsung Electronics that Samsung Electronics split itself into two companies and merge the holding company with Samsung C&T through two subsidiaries. This fact supports the analysis. “A plan for the merger of the two companies is a scenario which can be possible when the stock price of Samsung C&T soars. According to the plan, the more equities in Samsung C&T Elliot has, the more advantageous Elliot will be,” said a representative of the financial investment industry.
Analysis says that Elliot will put a pressure on Samsung Electronics on the surface but will actually take benefits from Samsung C&T. Elliot which has already become a shareholder of Samsung Electronics (0.68 percent) through affiliates, may attack Samsung Group vice chairman Lee Jae-yong who recently became a registered director, at a Samsung Electronics shareholders' meeting in March next year.
There is also a possibility that Elliot will file an investor-state dispute (ISD) arbitration lawsuit against the National Pension Service. The Korea-US Free Trade Agreement (FTA) agreement contains “minimum standards treatment” that ensures fair and equitable treatment of foreign investment. If and when the prosecution’s investigation finds that the government put a pressure on the National Pension Service and the national pension managing organization was found to have followed the government’s order during the merger process in July last year, Elliot will be able to raise questions based on this provision.
“We suffered damage caused by a decision of the National Pension Service biased toward Samsung C&T, and there was the Korean government that manages the national pension behind the unfair decision,” Elliot said earlier in a letter to the National Pension Service in August of last year, expressing its will to sue the Korean government through the ISD arbitration system. About two-thirds (23 percent) of foreign shareholders (33.2 percent) took issue with the merger between Samsung C&T and Cheil Industries in the former’s general shareholders meeting last year. In addition to Elliot, Dutch pension funds and US-based hedge fund Mason Capital voted against the merger. There is also a concern that a second and a third Elliot may come forward while harnessing the ISD system, depending the results of the prosecution's investigation.