Deals and IPOs

Elliott fires latest salvo in battle with Samsung

Samsung C&T's merger with Cheil is unfair, says Elliott
Samsung C&T's merger with Cheil is unfair, says Elliott

In an unfolding drama that has captivated South Korean media in recent weeks, U.S. activist hedge fund Elliott fired its latest salvo in its battle with conglomerate Samsung Group over a proposed merger between two of its subsidiaries Samsung C&T and Cheil Industries on Thursday.

Elliott, the third biggest shareholder in construction firm Samsung C&T with a 7.1 percent stake, launched a new website featuring a 27-page report on Thursday outlining why shareholders in Samsung C&T should reject the $8 billion all-stock takeover bid from affiliate Cheil Industries.

"Elliott continues to view the terms of the proposed takeover as unfair, unlawful and significantly damaging to the interest of Samsung's C&T shareholders," the firm wrote in a statement.

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The showdown between Elliott and heavyweight Samsung Group has garnered a lot of media attention in South Korea given shareholder activism is relatively rare in the country. Elliott's efforts to thwart the merger are seen as a challenge to the country's most powerful company and its wealthiest family, as insinuated by some local media reports. Lee Kun-hee, 73, chairman of Samsung Electronics is South Korea's richest man, with an estimated net worth of over $10.8 billion.

The challenge comes in the wake of public anger after Heather Cho, the daughter of Korean Air Lines' chairman, was forced to resign as the airline's head of inflight service after an outburst of rage over how she was served a bag of nuts led her to delay the flight to remove the flight attendant. The "nut rage" incident stocked public resentment against the power of the country's family-run conglomerates, called chaebol.

In this case, the hedge fund, which has filed two injunctions to block the deal, argues that the takeover offer significantly undervalues C&T. The firm also believes the merger proposal as presented by C&T's management carries with it "very limited evidence of synergies and benefits." The Seoul Central District Court is scheduled to hold a hearing to assess the injunction applications at 11am local time on Thursday.

Elliott also raised concerns over the voting process around the merger, saying that Samsung Group affiliates should not be allowed to vote on the merger proposal. A two-thirds majority is needed to approve the merger.

Samsung Group affiliate Samsung SDI holds at 7.4 percent stake in C&T, while Samsung Fire & Marine Insurance has a 4.8 percent stake.

Allowing them to vote "provides scope for the abuse of shareholders' rights if the governance standards of the companies concerned are inadequate," it said.

But public anger over the merger deal isn't necessarily targeted against the chaebol. The Korean Economic Daily has called on regulators to investigate Paul Elliott Singer, the founder of Elliott Management, for insider trading or other illegal activities, despite the absence of any evidence, Bloomberg reported.