Investors in South Korean markets will be watching closely Friday as Samsungshareholders gather to vote on a multibillion-dollar merger. The vote could be a watershed for shareholder rights as the country tries to evolve from the economic dominance of chaebol conglomerates with little accountability.
The merger would let Samsung’s de facto holding company, Cheil Industries, acquire construction affiliate Samsung C&T for about $9 billion, or nearly 50% less than the value of the affiliate’s stock holdings. The American hedge fund Elliott Associates owns a 7% stake in C&T and says the merger undervalues C&T by some $7 billion. Elliott says the merger’s true motive is to consolidate assets under the control of Samsung’s founding Lee family before the death of ailing Chairman Lee Kun-hee.
Executives at Cheil and C&T say the merger would be good for business and is priced according to a ratio of the companies’ share prices, as required by law. On the law, Seoul’s Central District Court has agreed. But when it comes to the business sense of the deal and its effect on shareholders, criticism has mounted.
Some of the world’s biggest money managers have joined Elliott in opposition, including pension giant APG Groep NV, the Canada Pension Plan Investment Board and Aberdeen Asset Management. Backlash within South Korea has come from some institutional shareholders, such as drug maker Ilsung Pharmaceutical, and especially from the roughly 3,000 individual investors who have formed Solidarity of Minor Shareholders of Samsung C&T.
Korean proxy advisers Sustinvest and Korea Corporate Governance Service have both recommended that the state-run National Pension Service (NPS) vote against the merger. NPS, which is South Korea’s biggest investor and the world’s fourth-largest pension fund, owns nearly 12% of C&T and may cast Friday’s decisive vote.
Overseen by the Health Ministry, NPS has echoed government pledges to improve Korean corporate governance, especially among family-run chaebol that are national icons but too often overcharge consumers, abuse political connections and trample shareholder rights. This year NPS touted that “for the first time” it is consulting domestic proxy advisers such as those now recommending against Samsung’s proposed merger.
Samsung is campaigning as if its life, or at least a succession plan, depends on it. Amid reports of C&T officials visiting mom-and-pop shareholders with pecan pies and watermelons, the company published ads Monday on the front page of every major Korean daily. “We desperately ask shareholders of Samsung C&T” to vote in favor, said the ads. “Unfortunately Elliott is trying to nullify the proposed merger in the shareholder meeting. Must the future of Samsung C&T and Cheil Industries be disturbed like this?”
The public appeal suggests that individual shareholders—typically so weak in Korea that they are known as “ants”—will have some influence on Friday’s meeting. The more who show up in opposition, the more difficulty C&T will have reaching the two-thirds threshold needed to vote itself into Cheil’s arms.
But the National Pension Service will have the most sway. It can hand a gift to Samsung’s politically powerful Lee family. Or it can rescue minority shareholders from a bad deal and prove that Koreans want to put the old self-dealing ways of their economy behind them.
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