Paul Singer’s Elliott Associates intensified its campaign against the proposed merger of Samsung C&T with Cheil Industries a day before the court hearing on the injunctions filed by the activist hedge fund to prevent the deal.

Many perceived the merger as key to the succession of leadership in Samsung Group, which is controlled by the Lee Family. The current chairman of the conglomerate, Lee Kun-Hee suffered a heart attack last year and has been incapacitated.

Lee Jae Yong, his apparent heir, is making the move to tighten his family’s control over the conglomerate. He is currently the vice chairman of Samsung Electronic, the crown jewel of the Samsung Group. Jae Yong and his family members own 42% of Cheil Industries, but only owns 1.4% of Samsung C&T. The merger is expected to cement his family’s control over the conglomerate.

In a statement, the Samsung Group in connection with the potential succession of control over the conglomerate. However, the activist hedge fund emphasized that any proposed transactions that are part of the restructuring must comply with all applicable corporate governance standards. It should also recognize the value attributable to Samsung C&T shareholders properly.

Samsung C&T Elliott

Elliott reiterated that Cheil Industries takeover was “unfair and unlawful”

In a 27-page online presentation, Elliott reiterated its position that the proposed takeover of Cheil Industries is “unfair and unlawful, and significantly damaging to the interests of Samsung C&T shareholders.”

Elliott filed court injunctions against Samsung C&T, its directors and KCC Corporation, to protect the interest of shareholders. The activist hedge fund argued that the sale of all the Samsung C&T common treasury shares to KCC on the record date for the proposed merger was “deeply alarming.”

Elliott explained that the sale “intentionally diluted the voting rights and the value attributable to Samsung C&T shareholders.”
The Seoul Central District Court is set to hear the hedge fund’s arguments for the injunctions on June 19.

Elliott said management failed to articulate convincing reasons in favor of the merger

According to Elliott, Samsung C&T is one of the leading engineering and construction companies in Korea. The activist hedge fund also noted that the company generated superior revenue growth with 6-year CAGR of 14% compared to its peers’ average of only 6%.

Elliott emphasized that Samsung C&T should be valued at a premium, not heavily discounted. The activist hedge fund also noted that Cheil Industries was extremely overvalued.

“The management teams of Samsung C&T and Cheil Industries have failed to articulate convincing reasons for shareholders to vote in favor of a merger between two very different companies,” said Elliott.

The activist hedge fund described the proposed transaction as an
attempt to “hastily railroad Samsung C&T shareholder into an unfair takeover.”

Elliott explained that the shareholders of Samsung C&T would give up KRW7.8TN of book value to the shareholders of Cheil Industries for no consideration if the proposed takeover is consummated.

“The proposed takeover cannot be properly or fairly assessed based on the current market valuations of Samsung C&T and Cheil Industries—an appropriate assessment must be based on the respective fair values of the companies,” said Elliott.