South Korean regulators are at loggerheads with Samsung Group, the country's biggest family-run conglomerate or chaebol over government-mandated cross-shareholding reforms that Samsung says would leave it vulnerable to a hostile takeover.
Samsung has refused to implement an April rule amendment introduced by the Fair Trade Commission, the anti-monopoly regulator, that limits the voting rights of a chaebol's financial companies over other affiliates in the group. The dispute deepened this week after Samsung's three financial units Samsung Fire and Marine Insurance, Samsung Life Insurance and Samsung Corp filed a petition with the Constitutional Court to nullify the FTC directive.
The FTC hit back on Thursday, saying the rule change was aimed at keeping chaebol influence over the financial sector in check. “There is nothing unconstitutional about it. It will limit Samsung's voting rights to some degree, but it is needed for the public interest,” said an official at the FTC who oversees chaebol.
“For example, Samsung's chairman Lee Kun-hee is using customers' assets in Samsung's financial units to maintain his management control over the group, which conflicts with the interest of Samsung's customers,” the official added.
Under the new rule, the voting rights of financial units owned by chaebol with assets exceeding Won2,000bn ($1.9bn) will be gradually reduced to 15 per cent by 2008 from the current 30 per cent. Conglomerates with more than Won6,000bn in assets will be prohibited from investing more than 25 per cent of their net assets in other companies, including their own units.
Samsung and other conglomerates have complained the reforms would leave them vulnerable to hostile takeovers, especially by foreign investors.
“The FTC act can be a hindrance to protecting our management rights in Samsung Electronics from potential hostile M&As by foreign capital,” said a Samsung Group spokesman. “We filed this petition as a last resort, because we have failed to find any other option to defend our management rights from such attempts.”
The FTC rejected Samsung's claims, saying the chances of a hostile takeover, especially from stock investors, were low. “Well-run companies don't have to worry about hostile takeovers. The problems occur when the owners try to keep management control, even though they can't manage well,” the FTC official said.
Foreign investors own more than half of Samsung Electronics, Asia's most valuable technology company, with a market capitalisation of $72bn, while Samsung's units and the founding family hold a combined 17.72 per cent stake.