Elliott Associates investor activism over Samsung’s merger

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“On Friday, Samsung fended off the major challenge posed by a chief activist investor as the funding family toughened its grip over the expanding South Korean company.”

The rare attack of activism in Asia exposed broader concerns related to shareholder rights and succession planning in the country that is dominated by family controlled companies such as Chaebols.

The battle is centered on the two Samsung affiliates, Samsung C&T and Cheil Industries the merger of which is touted at $8 billion. The restructuring will let Samsung transfer more power to Lee Jae-yong, the company’s chairman Lee Kun-hee’s son. He has been recovering after a heart attack in May last year.

Elliott Associates, the New York hedge fund wanted to fight the deal claiming that it grossly undervalued Samsung C&T and also represented an unlawful attempt by the Lee family to merge its hold.

For almost weeks, both the sides tried to drum up the support via fierce campaigns that featured lawsuits and front page newspaper advertisements. Samsung portrayed Elliott that owns 7.12 percent of Samsung C&T as a vulture capitalist and it went out on an orderly generational change to make a profit quickly. Elliott is run by Paul E. Singer, and it lost a pair of lawsuits that were filed looking to block the shareholder meeting. It was too close in the end. The merger was supported by 69.53 percent of the shareholders who had voted on Friday for the above mentioned amount.

The investor activism similar to the Samsung fight is uncommon in Asia. The publicly traded companies often remain under the management of the closely knit family groups or state backed shareholders. The legal protections for the minority investors are always patchy. In several cases, the activism in Asia plays out a longer horizon with the players supporting persistent behind the scenes over the public campaign.

Previously, Elliott went up against the powerful Asian tycoons. In 2014, the company built 2.5 percent stake in the Bank of East Asia that is one of the biggest local banks of Hong Kong that is controlled by the family of David Li. The stake of the hedge fund was diluted after the new shares of the bank were sold to Sumitomo Mitsui Financial Group of Japan.

Elliott wanted to challenge the decision and some analysts stated the same as a defensive move by the Li family. The Bank of East Asia was ordered by a Hong Kong court to disclose the reasons for the placement of the share. This face-off with Samsung became greatly visible in South Korea.

Though it lost the vote, the activism of Elliott had some effect. Samsung C&T and Cheil have assured to bolster corporate governance by the rising dividends and creating a shareholder rights committee.

 

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