A Seoul court has rejected an appeal from US activist fund Elliott Associates to block the merger of two Samsung group companies, saying that the proposed deal did not represent an illegal transfer of value to investors including the group’s founding family.
Elliott, which has taken a 7.1 per cent holding in Samsung C&T, had applied for an injunction against its proposed sale in an all-share deal to Cheil Industries, where Samsung heir-apparent Lee Jae-yong is the largest shareholder.
But the Seoul Central District Court ruled on Wednesday that the terms of the merger were in line with South Korean law, a decision widely anticipated by analysts. The prospects for the deal now rest on a vote by Samsung C&T shareholders on July 17.
Elliott had argued that the merger was designed to take advantage of a disparity in valuation between the two companies. Cheil’s market valuation had surged to 134 times its forecast net profit for this year when the merger was announced in May, while Samsung C&T’s share price fell 29 per cent in the six months before the deal, leaving it trading at 20 times forecast earnings.
Elliott said that the contrasting share movements reflected self-fulfilling investor anticipation of a merger that would benefit shareholders in Cheil Industries, at the expense of Samsung C&T shareholders.
South Korean corporate law mandates that merger ratios be calculated with reference to the two companies’ share prices in the weeks preceding an agreement, meaning the valuation gap was locked into the takeover agreement.
“It is impossible to see unfairness since the merger ratio has no legal problems,” the court said. It also noted that Samsung C&T’s share price had risen along with Cheil’s since the takeover agreement was announced, saying this indicated market support for the deal.
Shaun Cochran, Korea country head at CLSA, said that the likelihood of Elliott succeeding in its petition was always low. “You could argue [the deal] is not meeting minority shareholder needs, but that’s not the question of law that’s being addressed,” he said.
Samsung C&T said the court ruling “validates the fairness of the merger ratio and affirms that legal requirements have been met”.
Elliott said: “While we are disappointed with the court’s decision, we continue to believe that the proposed merger is neither fair nor in the best interests of Samsung C&T’s shareholders. We will continue to seek to prevent the proposed merger from being consummated.”
Elliott noted that the court had yet to rule on a second injunction request, which relates to Samsung C&T’s sale of its treasury shares— amounting to 5.76 per cent of the company — to paint group KCC, which the board described as a “friendly” investor likely to support the merger. Elliott wants to prevent KCC from using those shares to vote at the shareholder meeting.
The result of that vote may hinge on the decision of the South Korean National Pension Service, Samsung C&T’s largest shareholder with 10.2 per cent as of June 3. The passage of the deal would require the support of two-thirds of votes cast.
Shares in Cheil Industries rose 2.3 per cent, while shares in Samsung C&T climbed 1.2 per cent.
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