Elliott Associates Takes Activist Position in Samsung C&T, Opposes Merger Plans

Jun 4 2015 | 1:06pm ET

Peter Singer’s Elliott Associates has waded into the close-knit world of South Korean industrialists, disclosing a 7.12% stake, or 11.1 million shares, in Samsung C&T Corporation and publicly opposing the company’s proposed merger with Samsung Group’s affiliated holding company Cheil Industries. 

The stake makes Elliott the third-largest shareholder in Samsung C&T, South Korea’s largest building and trading company. 

Elliott Associates, a well-known activist investor partly made famous for a battle with Argentina over defaulted government bonds and not shy about pushing value-creating agendas around the world, believes Cheil’s offer for Samsung C&T “significantly undervalues” the firm, according to filings with the South Korean securities regulator, and was not in the best interests of Samsung C&T shareholders.

The move has electrified the normally staid world of South Korean business, which does not have much experience with activist investors and is notoriously opaque when it comes to disclosure and transparency. 

The move by Elliott increases pressure on Cheil, which has been under fire for putting the interests of Samsung Group's Lee family ahead of those of the company’s other shareholders, to up its offer. Samsung C&T(C&T) shares jumped as much as 13% on the news, having traded near five-year lows for much of the year. Nearly all of the company’s value prior to the announcement could be attributed to its 4.06% stake in flagship Samsung Electronics. 

Last week, Cheil Industries proposed an acquisition of C&T in a $9.4 billion all-stock deal in which each C&T share would be exchanged for 0.35 shares of Cheil Industries, which has soared since its December 2014 IPO.

The move was widely interpreted as an attempt by the Lee family, among the most powerful in the nation, to tighten its grip on various affiliates. In particular, industry observers believe the family is angling to consolidate control in crown jewel Samsung Electronics as it prepares for a generational succession of leadership. The group’s current chairman, Lee Kun-hee, has been debilitated since a heart attack in May 2014.

The family has retained control of Samsung through cross shareholdings between the 74 different companies that make up the $270 billion conglomerate, which has grown to be South Korea’s largest enterprise by revenue The proposed merger would bring C&T’s Samsung Electronics stake more directly under the control of the Lee family.

A shareholder vote on the proposed merger is scheduled for July 17, and will require a two-thirds majority to pass and representation of one-third of shareholders to be valid. The Lee family controls 42% of Cheil Industries, with affiliates controlling another 30%. Meanwhile, they own only 1.4% of C&T directly and potentially control less than 20%, according to The Wall Street Journal

Critical to the vote will be the stance of South Korea’s pension service, which is the country’s largest investor and owns 10.6% of C&T as of the end of May. The pension group has been known to block big mergers in the past, nixing a merger between Samsung Heavy Industries and Samsung Engineering last year.

Founded by Paul Singer in 1977, Elliott’s flagship fund has returned about 14% annually, according to Bloomberg data, and has approximately $26 billion under management through a number of investment vehicles.  

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