Samsung Group units scrap $2.5 bn merger on shareholder opposition

The takeover was one of several deals that Samsung recently announced to simplify its shareholding structure

Samsung Heavy Industries scrapped on Wednesday a $2.5 billion takeover of Samsung Engineering due to shareholder opposition, a setback for parent Samsung Group's restructuring plans ahead of a looming succession.

Stocks in both firms have fallen since the takeover was announced in September as investors were not convinced of its benefits. The decline triggered shareholder demands for a share buy back worth $1.5 billion, which was more than the firms were willing to pay to go ahead with the deal.

The takeover was one of several deals that Samsung Group has recently done to simplify its shareholding structure as the South Korean conglomerate prepares for a power transfer from its ailing and elderly chief Lee Kun-hee to his children.

Its scrapping shows these plans could be derailed by shareholders. "I expect a handful of decision makers at Samsung Group to be mindful of shareholders in restructuring going forward," said Kim Sung-soo, fund manager at LS Asset Management.

Shipbuilder Samsung Heavy had proposed the takeover of engineering and construction firm Samsung Engineering to create a larger, more efficient company. Analysts had said the deal's was mainly aimed at laying a groundwork that would make it easier for the Lee siblings to divide inherited assets.

The two companies had said they could cancel the merger if the buy back costs exceeded 410 billion won for Samsung Engineering or 950 billion won for Samsung Heavy. According to joint statement, Samsung Engineering shareholders wanted to sell shares worth 706.3 billion won while Samsung Heavy shareholders wanted a buyback worth 923.5 billion won.

Shares in Samsung Engineering closed more than 9% down, their lowest level in 5-1/2 years, as investors who had held onto their stocks in anticipation of a buyback dumped shares. Samsung Heavy also closed down 6.4%.

In their statement, Samsung Heavy and Samsung Engineering said they could reconsider the merger after "taking into account the market situation and shareholder opinions".

"Today's move should sound the alarm on Samsung's restructuring, which has been carried out unilaterally," said Chung Sun-sup, CEO of research firm Chaebul.com. "It signals shareholders could put brakes on restructuring moves if they go against their interests."

($1 = 1,101.8000 Korean won)