Groundless Allegation

The Samsung Group said that it was given no preferential treatment during the course of the merger between Samsung C&T and Cheil Industries.
The Samsung Group said that it was given no preferential treatment during the course of the merger between Samsung C&T and Cheil Industries.

 

The Samsung Group announced on February 9 that it was given no preferential treatment at all during the course of its cutting of the cross-shareholding relationship between Samsung C&T and Cheil Industries for their merger.

That day, some news channels reported that South Korean special prosecutors found a clue indicating that the Fair Trade Commission (FTC) of South Korea told Samsung SDI, which had both Samsung C&T and Cheil Industries shares, earlier to dispose of 10 million shares for the cutting of the cross-shareholding relationship and then reduced the number to five million after some pressure from the Office of the President of the Republic of Korea.

In response to the media reports, the Samsung Group explained that it sent information and data on the cross-shareholding relationship to the FTC at its request in September 2015, when the merger between Samsung C&T and Cheil Industries was completed. The group also explained that it asked the FTC for an authoritative interpretation although it determined after referring to law firms that the merger was not problematic with regard to the Fair Trade Act because the merger meant the simplification of the cross-shareholding relationship.

“Article 9-2 of the Fair Trade Act, which is a clause on the prohibition of new cross-shareholding relationships, was put into effect in July 2014 but there was no case of enforcement until the Samsung Group’s request for the first authoritative interpretation on September 8, 2015 following the issue of formation and strengthening of the cross-shareholding relationship resulting from the merger between Samsung C&T and Cheil Industries,” the FTC mentioned in this regard, continuing, “At that time, the Hyundai Motor Group made a similar request on October 26, 2015, when we were looking into the case of Samsung C&T and Cheil Industries, with regard to the merger between Hyundai Steel and Hyundai Hysco in July 2015, and then we examined both cases in a comprehensive manner.” In other words, the merger in the Hyundai Motor Group preceded the case of Samsung but the Hyundai Motor Group made an inquiry about the application of the law in four months from the merger.

“At that time, we had no case of law enforcement regarding the ban on new cross-shareholding and we were in need of uniform law enforcement standards in that cross-shareholding can take various modified forms depending on the types and details of mergers,” the FTC went on to say, adding, “So, we came up with law enforcement guidelines on December 24, 2015 after listening to multiple experts and having general meetings, and then we told both the Samsung and Hyundai Motor Groups to get rid of the strengthened parts of their cross-shareholding relationships in accordance with the guidelines.”

The guidelines were not stock sale orders issued to Samsung SDI and so on. According to the guidelines, Samsung SDI had to voluntarily sell five million Samsung C&T shares within six months from the merger, that is, by February 2016, and its non-execution of the voluntary selling could lead to the FTC’s investigation and penalty imposition. Likewise, Hyundai Motor Company and Kia Motors had to sell 5.74 million Hyundai Steel shares (4.3%) and 3.06 million Hyundai Steel shares (2.3%), respectively.

“The FTC’s authoritative interpretation entailed some different views and some experts from the outside also pointed out that it was not completely free from problems,” Samsung remarked, adding, “However, we voluntarily disposed of the five million shares because we were willing to cut the cross-shareholding relationship.”

Both companies completed the disposal of the shares within the given periods although requests for some delay were taken into account for the period until the deadline as short as two months.

On February 25, 2016, Samsung SDI sold 0.7% (worth 200 billion won) of the five million Samsung C&T shares to Samsung Electronics vice chairman Lee Jae-yong, 1% (300 billion won) to the Samsung Life Public Welfare Foundation and 0.9% (260 billion won) to institutional investors. On February 5, Hyundai Motor Company and Kia Motors sold 8.8 million Hyundai Steel shares (440 billion won) to NH Investment & Securities.

 

 

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