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Sticks and stones

7 Jul 2015 By Una Galani

Elliott’s battle with Samsung could get even uglier. The U.S. activist hedge fund has already taken its fight against South Korea’s largest chaebol to the courts, and been ridiculed in cartoons published by the group. Now it has picked up stakes in two more companies that form part of the sprawling empire. That gives Elliott a new lever to oppose the ruling Lee family over a $9 billion merger.

The fund is fighting the family’s attempt to merge construction firm Samsung C&T into Cheil Industries, the conglomerate’s de facto holding company, arguing the current terms are too stingy. Elliott already owns 7 percent of C&T and the new investment probably increases its total outlay on Samsung by more than a quarter, Breakingviews calculations suggest.

The purchases in Samsung Fire and Marine Insurance and battery-maker Samsung SDI, confirmed by Samsung Fire and Reuters, will have little direct impact on the deal. Combined, the pair own 12 percent of C&T. But they could let Elliott make a lot of noise. South Korean investors with shareholdings of 1 percent or more can sue company directors and see who else owns stock.

Elliott’s offensive comes after courts rejected two of its legal challenges against the merger. Now the spread between C&T shares and Cheil’s offer is at around its lowest since Elliott first emerged on the scene, suggesting hopes for a sweeter deal are fading.

Another potential worry for Elliott is that South Korea’s National Pension Service increased its C&T stake from 10.2 percent to almost 12 percent sometime in June after C&T shares had risen above the implied offer. It’s unclear what motivated NPS. It staged a wholly symbolic protest against another chaebol merger recently. But NPS could conceivably back Samsung here – even if that meant making a loss on its most recent purchase.

For now, it’s too close to call. The merger requires two thirds of votes cast to pass. Assuming shareholders with as much as 65 percent of the shares turn out on July 17, shareholders holding just 22 percent of C&T could block it. NPS is critical but Elliott can expect some help from other independent investors, especially after two leading proxy groups suggested voting no. Whatever happens, Elliott has bought itself a new stick to beat Samsung.




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