Samsung’s merger battle will have a lasting effect on South Korea. Shareholders will decide on July 17 on a $9 billion tie-up opposed by U.S. hedge fund manager Elliott. The vote will be tight. Even if it passes, the family-run conglomerates, or chaebols, that dominate the country’s economy will probably tread more carefully with independent shareholders in future.
The combination of Samsung C&T and Cheil Industries would help the Lee family behind Samsung, the largest of the chaebols, tighten its grip on key assets at a bargain price.
However, two-thirds of votes cast by C&T shareholders must approve the deal. The Korea Economic Daily says the National Pension Service, with 11.2 percent, is in favour. But Elliott has 7 percent itself, plus the backing of proxy groups. Even with a comparatively high turnout of investors, 22 percent opposition could be enough to kill the deal. And some local investors are allying with Elliott, despite Samsung’s efforts to portray the fund as a foreign invader.
It is hard to see from the outside exactly what is at stake for Elliott financially. But the conflict cements its reputation in Asia as a formidable foe. It has fought this in the courts and bought stakes in other Samsung companies, so it could remain a thorn in Samsung’s side even if the vote passes. Elliott has already picked fights with powerful Asian tycoons in the last two years, not always successfully. But the proven willingness to play hardball gives it a headstart in future campaigns.
For Samsung, defeat would be a watershed. Elliott’s assault feeds off growing frustration amongst domestic investors with the chaebols, which also include Hyundai Motor and SK Group.
C&T has already pledged better safeguards for outside shareholders – but it appears to be conditional on the deal passing. The worry for the Lees is that the deal is rejected and that shareholders push for changes anyway. That will complicate succession planning at the family, whose patriarch Lee Kun-hee has been in hospital for more than one year.
Lawyers say the controversy will also prompt a rethink of the rules governing mergers between sister companies, which allowed the lowball offer in the first place. In any case, the backlash should make the chaebols less dismissive of outside shareholders.