A Seoul court on Tuesday turned down a U.S. hedge fund’s request to stop a friendly shareholder of Samsung C&T Corp. from voting on a proposed merger with another Samsung unit with treasury shares bought from the builder.
Samsung C&T, the construction and trading arm of Samsung Group, is facing opposition from Elliott Associates over a takeover offer in May by Cheil Industries Inc., the group’s de facto holding firm.
The Seoul Central District Court said Samsung C&T’s sale of treasury shares to KCC Corp. is “not unfair” and doesn’t go against social norms, allowing the Samsung ally to exercise its voting rights at a shareholder meeting next week.
KCC acquired a 5.76 percent stake in Samsung C&T through a deal in June, which Elliott claimed was illegitimate.
“The sale of treasury shares doesn’t go against the interests of the company or shareholders as a whole,” the court said in a ruling statement. “It also cannot be seen as extremely unfair or running counter to the social order.”
Elliott, led by activist billionaire Paul Singer, has claimed the merger plan undermines C&T shareholders’ interests as it is based on unfair terms. It is the third-largest shareholder of the builder with a 7.12 percent stake.
Hailing the ruling, Samsung C&T said it will wrap up the proposed merger by rallying support from shareholders.
“The court ruling recognizes the legitimacy of the merger, and it will likely help the company drum up shareholder support,” it said.
“The ruling also reflects the court’s bid to ban overseas hedge funds from blocking the reasonable exercise of rights by shareholders through indiscriminate lawsuits,” Samsung C&T added.
Elliott immediately said it will appeal the ruling.
“We note the court’s decision but maintain our firm view that the deliberate sale of treasury shares, designed solely to support a fundamentally unfair deal for Samsung C&T’s shareholders, was wholly improper, not least from a corporate governance perspective,” the company said.
“We will shortly lodge our appeal in respect of this first instance Court decision,” it added.
On Wednesday, a Seoul court rejected its first injunction, saying the proposed merger ratio of 0.35 Cheil share for 1 C&T share was laid out in accordance with the nation’s financial regulations. The hedge fund then said it will also appeal the case as well.
Samsung C&T and Elliott have been battling to gather allies ahead of a shareholders’ meeting, each urging shareholders to exercise their voting rights by proxy, with no parties having a clear sign of victory.
Last week, an influential corporate advisory firm, Institutional Shareholder Services Inc., said the latest merger plan “significantly disadvantages Samsung C&T shareholders,”
lending a voice to further support Elliott’s claim and casting clouds over the fate of two Samsung arms.
Samsung C&T shareholders are scheduled to meet on July 17 to vote on the firm’s proposed merger with Cheil Industries.
The proposed merger must win approval from shareholders with two-thirds of the voting rights and a third of outstanding shares in order to pass.
The proposed merger, meanwhile, is also widely seen as aiming to pave the way for the transfer of power from hospitalized tycoon Lee Kun-hee, South Korea’s richest man, to his only son Jay-yong.
Once the merger is completed, Jay-yong will become the biggest shareholder of the merged entity with a 16.5 percent stake and rise to the top of the group’s hierarchy. The new merged entity will keep the name Samsung C&T as it is one of the original arms of Samsung Group. (Yonhap)
