Samsung Merger Goes Through After Heated Debate

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After a rancorous battle that feautured anti-Semitic slurs by Korean media, a merger is approved.

Following weeks of controversy, lawsuits and a viciously anti-Semitic campaign against the leading minority investor, Elliott Associates, led by South Korean media, Samsung shareholders approved a merger Friday between subsidiaries Samsung C&T and Cheil Industries. The deal between the conglomerate’s construction company and its de facto holding company essentially assures Samsung will remain under control of its 73-year-old chairman Lee Kun hee and his family.

Lee suffered a heart attack last year and has been preparing to pass the company on to his son and grandson. By virtue of getting 69.6 percent of the vote — just above the two-thirds majority needed under Korean law — the transition will go through.


Elliott, which owns 7.12 percent of Samsung C&T and argued unsuccessfully in a Korean court that the merger drastically devalues its shares, is uncertain how to proceed at this point.

“Elliott is disappointed that the takeover has been approved against the wishes of so many independent shareholders and reserves all options at its disposal,” according to a statement released by the firm.

Elliott also would not address the number of anti-Semitic slurs directed towards president Paul E. Singer in several Korean publications, categorizing him as a “ruthless greedy Jew.”

The honorary Consulate General of Korea in Philadelphia, E. Harris Baum, said the incident bothered him greatly. “I’m not amazed by the results,” said Baum, who is Jewish and had written a letter to a Korean publication earlier in the week condemning these attacks. “However, I was amazed by the vitriolic propaganda used in order to sway the vote in favor of the Lees. It’s a sorry state of affairs when the ‘race card’ has to be used once again by some groups to attain their goals.”

However, according to Forbes magazine, those attacks led to Samsung pulling its ads from Mediapen, one of the more offensive publications.

According to the New York Times, the Elliott challenge will lead to some changes in shareholder policy.

The Times article indicated that Cheil and Samsung C&T have promised to bolster corporate governance by increasing dividends and creating a shareholder rights committee after the merger.

In addition, Samsung believes the merger between its construction and trading arm (C&T) and Cheil, which specializes in fashion and theme parks, would create “synergies.” The merger could also lead to a Samsung push into bioengineering

“We will listen to those who opposed the deal and pledge to better engage with our shareholders and be more open to their input and feedback,” Cheil and Samsung C&T said in a joint statement.

Despite that veneer of comity, according to the Wall Street Journal, the scene at the press conference announcing the results was chaotic, with a number of minority shareholders standing up in protest and jeering Samsung C&T chief executive Choi Chi-hun. According to the Journal article, one man even stormed the podium and had to be removed by security.

Elliott has picked fights with powerful Asian tycoons in the past two years, but its track record in the region has been mixed. Last year, it built up a 2.5 percent stake in the Bank of East Asia, one of Hong Kong’s biggest local banks, which is controlled by the family of David Li. But the hedge fund’s stake was diluted after the bank sold new shares to the Sumitomo Mitsui Financial Group of Japan.

Elliott sought to challenge the decision, which some analysts described as a defensive move by the Li family, asking a Hong Kong court to order Bank of East Asia to disclose the reasons for the share placement. But it has so far stopped short of filing a lawsuit against the bank or its directors.

The vote on Friday offered a major test for Samsung and its heir apparent, Mr. Lee, who holds the title of vice chairman at Samsung Electronics, in gaining recognition from small individual shareholders and foreign investors, who together owned half of Samsung C&T. To win their support, Samsung had dispatched executives on overseas trips and rank-and-file employees on door-to-door visits to domestic stockholders.

Elliott had filed and lost a pair of lawsuits seeking to block the shareholder meeting on Friday. But going into the vote, it had won support from some international investors, like the Canada Pension Plan Investment Board, and outside advisory firms like Institutional Shareholder Services and Korea Corporate Governance Service. Thousands of small local shareholders also rallied online to support Elliott’s activist strategy as a catalyst for better corporate governance.

But South Koreans also remained fiercely protective of major homegrown companies. Samsung won the support of domestic institutional investors, including South Korea’s National Pension Service, which was the single largest shareholder at Samsung C&T, with an 11.9 percent stake. As the fight raged between Samsung and Elliott, editorials in leading domestic newspapers suggested that the country allow top domestic companies to adopt dual-class stocks, “poison pills” and other shields against hostile takeover bids by foreign hedge funds.

“Samsung’s battle should not be a lonely fight,” Lee Chul-ho, the chief editorial writer of the local mass-circulation daily JoongAng Ilbo, wrote in a recent column. “If Samsung loses, other companies could fall prey to outside predators.”

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