Lawyers for Samsung C&T Corp. and a U.S. hedge fund clashed in court Friday over a plan to merge the builder with another key affiliate of Samsung Group, with both sides sticking to their guns over the controversial move.
The high-profile court battle came as Elliot Management applied for two court injunctions to block a May 26 offer by Cheil Industries Inc., Samsung’s de facto holding firm, to take over Samsung C&T for 8.9 trillion won ($8.06 billion), claiming the deal is “unlawful and goes against shareholder interest.”
The hedge fund has asked the court to stop Samsung C&T from holding a shareholder meeting slated for July 17 and putting the merger plan to a vote. It is also seeking to prevent Samsung C&T’s sale of 5.76 percent of treasury shares to ally KCC Corp. and restrict KCC’s voting rights.
At the first hearing held in the Seoul Central District Court, the lawyer for the hedge fund claimed that the merger is designed to help the Lee family facilitate the power succession for Lee Jay-yong, the only son of the group’s patriarch Lee Kun-hee.
“Samsung C&T’s 4.1 percent stake in Samsung Electronics is the most important part. This is more than 8 trillion won in assets, but there is significance in this stake that is impossible to put into figures,” Choi Young-ik of law firm Nexus said.
He stressed that the Lee family needs that 4.1 percent stake, as it has maintained control over the group with a handful of stakes through a web-like cross-shareholding structure.
When completed, the merger would put Lee Jay-yong, the only son of Samsung chairman Lee Kun-hee, at the top of the hierarchy with a major stake in Samsung C&T, consolidating his grip on the group through C&T’s controlling stakes in other Samsung arms including the crown jewel Samsung Electronics Co.
Choi stressed the hedge fund’s earlier claim that the deal is not fair because the terms of the takeover has underestimated C&T’s value while inflating that of Cheil.
Countering Elliott’s argument, Samsung C&T’s legal representative said the calculation of 0.35 Cheil Industries share for one Samsung C&T share proposed in the deal is fair given their current share prices.
“The price of a stock is an objective value set by market participants’ collective appraisal on a company and the law stipulates to set the merger ratio according to the share price,” said Kim Yong-sang from Kim & Chang.
At the hearing, Samsung C&T asked the court to take into account the fact that “if the injunction is accepted, Elliot would exercise its voting rights maliciously.”
Samsung C&T also accused the hedge fund of trying to harm the company by calling for a dividend payout in kind as well as in cash.
“The proposal (to change dividend policy) appears to be intended at getting Samsung Electronics shares, which will turn Samsung C&T into ‘an empty shell’ once it bleeds the firm dry through an interim payout, the court will deliver its decision on the injunctions by July 1”, it said.
Earlier Friday, Samsung C&T refuted Elliott’s claim in a statement posted on its website, insisting that the merger plan is being carried out as a legitimate process in accordance with local law.
Elliott, led by activist billionaire Paul Singer, set out to challenge the family-run group on June 4 by reporting to the financial regulator here its increased stake in Samsung C&T to 7.12 percent.
Market watchers said the court’s decision on whether to validate the treasury sale to KCC will be key to the Friday hearing, given that the new stake handed over to the ally will hike the votes in support of Samsung C&T to 19.75 percent when the firm puts the merger bid up for a vote.
There has been no precedent by the Supreme Court on a similar case in South Korea, according to legal experts. In 2003, a lower court dismissed an injunction by Dubai-based Sovereign Asset Management seeking to ban South Korea’s SK Corp.’s treasury share sale to a bank.
Samsung C&T said it has added Elliott’s proposal on the dividend policy revision to one of the agendas at the shareholder meeting next month, for “a fair procedure.”
On Thursday, a separate regulatory filing showed that the country’s anti-trust watchdog has given the green light to the merger of the two companies. (Yonhap)
