SEOUL — Samsung secured shareholder approval Friday for the crucial merger of two affiliates, fending off a formidable challenge from investor activists led by a combative American hedge fund.
The victory followed a bitterly contested proxy battle and will come as an enormous relief to the Samsung Group’s founding Lee family, the wealthiest in South Korea, as it seeks to restructure the multi-headed corporation ahead of a generational transfer of power from ailing patriarch Lee Kun-Hee.
At a packed and sometimes fractious emergency meeting on Friday, shareholders of construction firm Samsung C&T voted in favor of a takeover by the group’s de facto holding company, Cheil Industries, in an all-stock deal.
Both companies saw their share prices plunge in the wake of the vote result, with C&T closing down 10.4% at 62,100 won ($54.12), and Cheil down 7.7% 179,000 won ($155.99).
The merger had been passionately opposed by a significant number of C&T investors, rallied by U.S. hedge fund Elliott Associates — the company’s second-largest single shareholder. Elliott had argued that the takeover willfully undervalued the C&T share price, at an unacceptable cost to its shareholders.
Samsung C&T executives insisted the deal made good business sense and would enhance shareholder value in the long-run, with a more competitive merged company that could target sales of 60 trillion won ($52.29 billion) by 2020.
“I am grateful for the shareholders who voted for the merger,” C&T chief executive Choi Chi-Hun told reporters. “We will do our utmost to ensure their support is repaid in the form of heightened shareholder value.”
Turnout was high, with 83.6% of eligible C&T voting shares cast. That left Samsung requiring 55.7% of the vote to secure the necessary two-thirds majority, and the finally tally in favor of the merger was 69.5%.
Samsung moves forward, Elliott prepares for Round 2
For Samsung, victory was critical to its current strategy of streamlining and consolidating its group holdings into fewer, larger companies. The Lee family already controls Cheil and taking over C&T will solidify its grip on the entire conglomerate because the affiliate holds more than $10 billion in shares of Samsung Group units.
Elliot had complained that C&T was essentially being offered up in what amounted to a sweetheart deal that penalized its shareholders. The hedge fund, which had also sought to block the merger in the South Korean courts, accepted the vote result, but hinted that it could pursue other avenues of opposition.
“Elliott is disappointed that the takeover appears to have been approved against the wishes of so many independent shareholders and reserves all options at its disposal,” spokesman Richard Barton said in a statement.
Although the anti-merger camp lost the final vote, its muscular campaign marked a watershed moment for shareholder activism in South Korea, where family-run conglomerates, or “chaebol,” dominate the economy and are used to running their businesses with minimum investor interference.
In an unprecedented show of domestic investor power, more than 3,000 individual shareholders had grouped together in an online forum aimed at blocking the C&T takeover.
“I think this will be seen as a positive, transitional moment in South Korea’s corporate culture,” said Hwang Sei-Woon, an analyst at the Korea Capital Market Institute. “It highlighted deep-rooted problems in corporate governance by the chaebol.”
Small shareholders made sure their voices were heard during Friday’s meeting, taking the microphone and embarking on long, often rambling speeches — both for and against the takeover.
“I oppose this merger absolutely,” said dentist Park Sun-Ok, who bought his C&T shares 13 years ago and said he doubted the board claims that the deal would trigger a long-term rise in shareholder value.
Kang Dong-Ok, an activist representing small shareholders, accused Samsung of playing a “dirty game” — harassing shareholders at their homes and workplaces.
by Park Chan-Kyong
Copyright Agence France-Presse, 2015