US fund Elliott challenges Samsung Group's restructure move

Says it is opposed to Cheil Industries Inc's $8 billion takeover offer for Samsung C&T Corp

An activist US hedge fund on Thursday threw a spanner in the works of Samsung Group's restructuring by opposing a merger which would allow the controlling Lee family to consolidate their holdings ahead of a successional change of leadership.

In a rare instance of investor activism in South Korea, hedge fund Elliott revealed it had built a major stake in construction firm Samsung C&T Corp and announced its opposition to Cheil Industries Inc's $8 billion takeover offer.

The move is the first significant challenge to a merger that investors and analysts believe is crucial to a smooth transfer of power at South Korea's top family-run conglomerate, after patriarch Lee Kun-hee, 73, fell ill a year ago.
 

"Elliott believes that Cheil Industries' proposed takeover of Samsung C&T significantly undervalues Samsung C&T and that the terms are neither fair to nor in the best interests of Samsung C&T's shareholders," Elliott, which is now Samsung C&T's third-largest shareholder with a 7.1% stake, said in a statement.

The merger would consolidate stakes in key affiliates like smartphone giant Samsung Electronics Co Ltd under a single entity controlled by heir apparent Jay Y Lee, 46, and his two sisters, tightening their grip on the business empire.

Elliott's action could galvanise opposition to the deal amid growing investor complaints that South Korea's top conglomerates put their founding families' interests before shareholders'.

Several investors believe Cheil has made a low offer. The book value of Samsung C&T's various equity holdings in publicly traded firms, including a 4.1% stake in Samsung Electronics, was about 13 trillion won ($11.73 billion) at end-March.

Cheil may also scrap the offer if it has to buy back more than 1.5 trillion won of Samsung C&T shares from shareholders who elect to cash out instead of taking new Cheil stock. Elliott's stake was worth 701 billion won at Tuesday's closing price.

"This is a big warning saying that the owners can't just do whatever they please," said Nam Dong-woo, equities head for Samsung C&T shareholder Eastspring Asset Management, who opposes Cheil's offer.

The deal's fate may depend on the National Pension Service (NPS), Samsung C&T's top shareholder with a 9.8% stake as of Wednesday. An NPS spokesman said it had not decided whether to accept the offer and that Elliott's stance made no difference.

Shares of Samsung C&T and Cheil Industries opened higher after the announcement, amid speculation that Cheil may have to offer better terms. Samsung C&T said it would reach out to various investors and work to boost shareholder value.

"We hope this will be a wake-up call to Samsung," said Park Yoo-kyung, a director for Samsung C&T shareholder APG Asset Management.

"Korea has finally started to see investor activism like other countries."

($1 = 1,108.3000 won)