It has been found that Elliott Management Corporation is pushing for an investor-state dispute (ISD) against the South Korean government for its claimed losses during the merger between Samsung C&T and Cheil Industries. A South Korean corporate governance expert said that the move is actually aimed at Hyundai Motor Group, not Samsung.
“The US hedge fund is currently in a tug of war with Hyundai Motor Group over governance reform and it is likely to use every means within its reach to maximize its gains,” he explained. “The ISD can be interpreted as a warning against the government not to take sides with Hyundai and as a kind of tacit pressure on Hyundai owners to boost the stock prices of its affiliates.”
Under the circumstances, criticisms are predicted to arise against the Moon Jae-in administration’s attempt to use the influence of the National Pension Service (NPS) in pushing for corporate governance reform. It plans to introduce such measures as cumulative voting and a worker director system that would give the NPS enormous power.
The problem is that these measures could provide room for maneuver to corporate raiders. The government’s proposal for commercial law revision may cause some resistance, too.
Many in the industry are regarding Hyundai Motor Group as the real target of Elliott's ISD. In Elliott, everything has already been settled when it comes to the merger between the Samsung Group affiliates. Elliott, which was opposed to the merger in 2015, already left Samsung after selling all of its shares. “It seems that the activist hedge fund is playing the Samsung card for the purpose of maximizing its gains from its investment in Hyundai Motor Group shares,” said a Samsung executive.
The legitimacy of the ISD itself is being called into question by many as well. “According to court rulings, Samsung Electronics did not solicit the NPS for the merger and the Blue House did not force former Health and Welfare Minister Moon Hyung-pyo to give his consent to the merger,” a local corporate executive explained, continuing, “In short, the NPS gave its consent based on its own determination, and then the ISD is ill-founded.” A legal expert also said that it still remains to be seen whether the International Centre for Settlement of Investment Disputes (ICSID) will regard the NPS as a government or a state even if Elliott actually files the suit.
Elliott submitted a notice of intent to the Ministry of Justice before the ISD and this seems to be related to Hyundai. In other words, the notice of intent is to urge the South Korean government to remain neutral in its disputes with Hyundai and warn the market that the matter can turn into management disputes at any time.
As of the end of 2017, the NPS owned 8.44% of Hyundai Motor Company and 9.82% of Hyundai Mobis, which means the pension fund’s exercise of voting rights cannot but be highly significant. “Elliott has nothing to lose by filing the suit,” said an industry insider, adding, “The suit is to get the upper hand in its ongoing confrontation with Hyundai.”
The Moon Jae-in administration has claimed that the previous government put illegal pressure on the NPS. Although the court ruled the other way, it cannot be denied that the administration’s stance triggered the ISD. In this regard, voices against the government’s influence on the NPS are likely to rise in the political community.