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Time to pick sides

11 Jun 2015 By Una Galani

Samsung’s underhand share dealings will test how much South Korea really wants to rein in its chaebols. Construction firm Samsung C&T has sold a 6 percent stake to a friendly party in an attempt to neutralise opposition to its controversial $10 billion takeover by the South Korean conglomerate’s holding company. The maneouvre helps Samsung’s ruling Lee family plan its succession at the expense of independent shareholders. Official reaction will be a test of South Korea’s reform credentials.

The battle kicked off last month when C&T accepted a low-ball takeover from Cheil Industries, the company through which the Lee clan effectively exercises control over the Samsung empire. A week later U.S. activist hedge fund Elliott revealed it had bought 7.1 percent of C&T and intended to oppose the offer.

C&T has now fought back by selling almost 9 million treasury shares to KCC Corp for $608 million, making the South Korean builder its fourth-largest shareholder. KCC is expected to support the merger even though doing so will leave it with a loss. At current market prices, Cheil’s all-share offer is worth almost 63,000 won per C&T share – 16 percent less than the price paid by KCC.

It’s up to official institutions to decide whether they want to stop such shenanigans. Elliott has gone to court to block the C&T takeover, and is now also seeking an injunction against the sale of shares to KCC. Meanwhile South Korea’s National Pension Service, which owns 10 percent of C&T, must choose whether or not to accept the offer. Its decision is paramount as the deal requires the approval of two thirds of shareholders that cast their vote.

It’s not new for South Korean conglomerates to use treasury shares in an attempt to resist foreign shareholders. In 2003, oil refiner SK Corp used the tactic to fight off calls for management changes from private investment fund Sovereign. Yet even domestic investors are becoming increasingly vocal about what they see as the abuse of corporate power by South Korea’s large family-controlled groups. The Samsung battle is an opportunity to show whether or not they are serious about reform.


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