Samsung Group’s victory in a battle with U.S. activist hedge fund Elliot Associates over Cheil Industries’ merger with Samsung C&T will likely cap the group’s scheme to solidify Lee Jay-yong’s control over the group.
Samsung C&T held an extraordinary shareholders’ meeting at the aT Center in southeastern Seoul on July 27 and approved the merger as 69.53 percent of participating shareholders voted for it. Earlier, an extraordinary shareholders’ meeting of Cheil Industries also gave a green light to the merger.
Vice Chairman Lee Jay-yong has so far engaged in managing the group in the capacity of the oldest son of Samsung Group Chairman Lee Kun-hee. Lee’s victory marks a milestone now that it will enable him to have a 16.4 percent stake in the newly merged Samsung C&T, the de facto holding company of Samsung Group, to control all Samsung Group subsidiaries.
Samsung Group has been so far run under a cross-investment management structure to link Samsung Life Insurance, Samsung Electronics, Samsung SDI, Samsung C&T and Samsung Electronics in that order. The group had a two-track structure with Samsung Life Insurance in virtual control of its financial subsidiaries and Samsung Electronics controlling non-financial subsidiaries.
Samsung C&T has played the part of stabilizing the management structure, since the company owns a considerable stake in several subsidiaries. Samsung C&T has a 4.1 percent interest in Samsung Electronics, a 7.8 percent stake in Samsung Engineering, a 12.6 percent share in Cheil Worldwide, a 17.1 percent stake in Samsung SDS, a 4.9 percent interest in Samsung BioLogics, while Cheil Industries owns a 19.3 percent share in Samsung Life Insurance.
The newly-merged Samsung C&T will have effectively own a 4.1 stake in Samsung Electronics and a 19.3 percent interest in Samsung Life to virtually become the new holding company of Samsung Group. The merger will bring about a new management structure, connecting the newly merged Samsung C&T, Samsung Life Insurance, Samsung Electronics and Samsung SDI, respectively.
The top Korean conglomerates, including Hyundai Motor Group, whose subsidiary shares are owned by foreigners, are prone to be the target of such activist hedge funds as is the case with Samsung Group, which was assaulted by Elliot. Some experts and business leaders demand the government come up with countermeasures, including legislation of a Poison Pill, like in advanced countries, to fend off such attacks to protect large Korean companies.
Samsung Group and Elliot fought a fierce battle, with the former winning the final showdown, soliciting even individual shareholders to vote for the merger. Initially, Samsung Group appeared to get the upper hand with KCC emerging as a white knight and its single largest shareholder, National Pension Service, deciding to vote in favor. But Elliot, Samsung C&T’s largest foreign institutional shareholder, did not stop in launching a full-scale offensive by taking the merger issue to the courts and trying to persuade foreign shareholders to vote against it, claiming that the merger ratio of 1-to-0.35 is in favor of Cheil Industries.
Cheil Industries decided to repurchase 2.5 million treasury stocks as part of its efforts to shore up the declining share price following the approval of the merger.
On May 26, each member of the board of directors of Samsung C&T and Cheil Industries approved the merger, which is to be competed on Sept. 1. At that time, Samsung said the new Samsung C&T aims to become the top class global company leading F&B, clothing, housing, leisure and biotech businesses.
The new Samsung C&T will secure growth momentum and become the largest shareholder of biotech business, which is a new growth engine of Samsung Group.
In reality, the merger will solidify the group’s grip on Samsung BioLogistics, the group’s bio-pharmaceutical business unit. The new Samsung C&T will own a 51.2 percent stake by combining a 46.3 percent interest held by Cheil Industries with Samsung C&T’s 4.9 percent stake. Samsung Electronics also has a 46.3 percent stake. Annual revenue is expected to rise from pre-merger 34 trillion won to 60 trillion won in 2020, the group said.
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