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Hedge Fund Accuses Samsung of Foul Play over Stock Sale

June 19, 2015
The hedge fund Elliott urged a South Korean court to approve an injunction against the proposed merger of two Samsung units, insisting it is aimed at facilitating a generational power transfer rather than acting in the interest of shareholders.

SEOUL—New York-based hedge fund Elliott urged a South Korean court Friday to approve an injunction against the proposed merger of two Samsung units, insisting it is aimed at facilitating a generational power transfer rather than acting in the interest of shareholders.

Samsung said the planned merger is legitimate and would not hurt the value of shareholders, accusing the fund of filing a lawsuit aimed at taking away high dividends.

The Seoul Central District Court promised to rule on July 1 on the dispute, which pits Elliott against South Korea’s richest family, who control the $270 billion Samsung business empire.

The planned merger, which would see Cheil Industries acquire Samsung C&T Corp through an all-stock deal, is the latest in a series of moves by Samsung's founding Lee family to boost control over the conglomerate.

In recent years, the group controlled by hospitalized Samsung patriarch Lee Kun-Hee has merged, broken out or newly listed some key units as he prepares to hand over the reins to his son, J.Y. Lee.

Elliott has filed separate injunctions aimed at blocking Samsung's friendly shareholder, KCC Corp., from voting at the meeting of shareholders next month.

At Friday's hearing, Samsung rebutted Elliott's claim that Cheil Industries, the group's virtual holding company, was using illicit means to lowball Samsung C&T's minority shareholders, according to the Yonhap news agency.

Samsung said the merger ratio of 0.35 Cheil Industries shares for one Samsung C&T share is a fair offer based on their current share prices.

Elliott, the third-largest shareholder of Samsung C&T with a 7.1% stake, insisted the merger was based on an underestimation of Samsung C&T's value and an exaggerated assessment of Cheil Industries.

The fund also said the merger ratio was not properly calculated.

"The merger... is aimed at facilitating the transfer of family leadership, not for the interests of Samsung C&T," the US fund said through lawyers cited by Yonhap.

Samsung C&T controls a 4.1% stake in Samsung Electronics, the group's flagship unit and the world's top maker of smartphones and mobile phones.

Elliott accused the Lee family of seeking to acquire the stake in an effort to strengthen control over Samsung Electronics.

The Lee family, which controls the group via a complex web of cross shareholdings between its subsidiaries, currently has less than a 5%  stake in Samsung Electronics, a holding that will be boosted by the merger.

Recent health problems concerning the senior Lee, currently bedridden after suffering a heart attack last year, prompted the group to step up restructuring efforts. 

The group, comprised of dozens of units ranging from electronics to hotels, earns a collective revenue equal to around 20% of South Korea's annual economic output.

Copyright Agence France-Presse, 2015

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