US fund Elliott seeks injunction to block Samsung's $8 billion asset shake-up

The fund, third-biggest investor in Samsung C&T, says Cheil's offer is too low

US activist hedge fund Elliott is taking legal action to block a move by the family that runs Samsung Group to cement its grip on the conglomerate, asking a Seoul court to stop an $8 billion merger of two Samsung sister firms that the fund says is unfair.

In a rare display of investor activism in South Korea, Elliott on Tuesday said it filed for an injunction with the Seoul Central District Court to block a July 17 Samsung C&T Corp shareholder vote on an approach from Cheil Industries Inc. The fund, third-biggest investor in Samsung C&T, says Cheil's offer is too low.

The merger comes as Samsung seeks to ease a transfer of power to Jay Y. Lee, heir apparent within the family that controls a conglomerate featuring tech giant Samsung Electronics Co Ltd as the jewel in its crown. Group patriarch Lee Kun-hee, 73, has been hospitalised since suffering a heart attack more than a year ago.

While international activists have made little impact in South Korea, observers say Elliott's move is more about securing better terms than derailing the deal altogether. The Seoul court confirmed receipt of the injunction request, but declined further comment, including on when a ruling might be issued.

"Considering the nature of a hedge fund, I don't think Elliott's ultimate goal is to block this merger," said Park Ju-gun, head of corporate analysis firm CEO Score. "It's clear that (the target firm) is being undervalued and I don't think it's unreasonable for Elliott to point this out."

Investors in construction firm Samsung C&T, including Elliott, are due to vote on an all-share offer from Cheil Industries, Samsung's de facto holding group, at an extraordinary meeting next month. Elliott has a 7.1% stake in Samsung C&T, worth close to $700 million.

Cheil and Samsung C&T say combining their construction businesses and the latter's global network will bring synergies. But observers say the deal is aimed at consolidating stakes in key affiliates including Samsung Electronics into a single vehicle, controlled by Jay Y. Lee and his two sisters.

Several Samsung C&T investors have criticised Cheil's offer as too low. They say the book value of Samsung C&T stakes in listed companies alone was around 13 trillion won at end-March - about 46% more than the offer's valuation.

"What worries me is how many heads of other Korean conglomerates will get a free pass because of what Samsung is doing," said Nam Dong-woo, head of equities at Samsung C&T shareholder Eastspring Asset Management. He said Cheil should at least make an offer on par with Samsung C&T's equity holdings.

Samsung C&T shares fell 3.6% on Tuesday, while Cheil stock dropped 0.5% and Seoul's benchmark index was off 0.1%.

A Samsung C&T spokesman said the merger was proceeding in accordance with law and the firm will respond to Elliott's injunction request after determining the exact details. A Cheil Industries spokesman declined to comment.