Samsung's Cheil, pitching $8 billion merger, pledges higher returns

Says will increase its dividend payout ratio to 30% by 2020, consider share buybacks

Locked in a battle with an activist US hedge fund, the Samsung Group's de facto holding company sought to win support for a proposed $8 billion merger with a sister firm by pledging to bolster post-deal shareholder returns.

Cheil Industries said on Tuesday that the company formed on completion of its all-stock takeover of Samsung C&T Corp would gradually increase its dividend payout ratio to 30% by 2020 from the equivalent of 21% in 2014 and also consider future share buybacks.

On a forecast 2020 pre-tax profit of 4 trillion won, the dividends would amount to 4,800 won ($4.29) per share, Cheil said in a statement. It also promised a governance committee within the board of directors to guard investor interests.

"The steps show that the companies are mindful of shareholder value, but we need to take a closer look at the details and whether the growth strategy set forth is reasonable," said Baik Jae-yer, fund manager at Korea Investment Trust Management, a Samsung C&T investor.

The investment firm has yet to decide how it will vote at a July 17 shareholders' meeting, he said.

A deal would smoothen a leadership transfer for Samsung's founding Lee family by helping to consolidate stakes in key companies including Samsung Electronics Co Ltd into a vehicle firmly controlled by the Lee heirs.

ELLIOTT'S CHALLENGE

The Samsung Group is trying to fend off a challenge from Samsung C&T shareholder Elliott, a hedge fund that has filed two injunction requests with a South Korean court to block the merger, which it says undervalues C&T. The court may issue rulings on both requests on Wednesday.

In a rare case of shareholder activism in a country that has long been wary of foreign investors, Elliott has repeatedly criticised the deal and called on investors to vote against Cheil's offer.

Elliott declined on Tuesday to comment on Cheil's proposed steps.

Investors in Samsung C&T including overseas fund firms Aberdeen Asset Management and APG Asset Management, and South Korea's Ilsung Pharmaceutical Co, have also spoken out against the deal, while some domestic investors such as Shinyoung Asset Management have voiced support.

Cheil co-Chief Executive Yoon Joo-hwa told analysts during a briefing on Tuesday that if the current offer fails, the firm will not try again to merge with Samsung C&T.

C&T, separately, sent a letter to shareholders on Tuesday urging them to accept the deal: "We caution our shareholders to be wary of Elliott’s questionable motives," it said.

($1 = 1,119.1000 won)