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Should Samsung Merger be Rejected?

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Samsung Merger

Should Samsung Merger be Rejected?

July 6 2015, 07.50am GMT


Succession plans at Samsung are in the balance as Institutional Shareholder Services Inc. advised shareholders to reject the proposed merger of the two Samsung Group companies.

This merger would see Cheil Industries, the Samsung Group de facto holding company, effectively taking over Samsung C&T Corp. The $8 billion merger deal is viewed as a key step in securing the transfer of the leadership of the family run conglomerate.

The plan for restructuring the Samsung Group through this merger comes in the wake of the heart attack suffered by the 73 year old patriarch of the Samsung founding family, Lee Kun-hee who is still hospitalized following the health setback.

Reuters reports that in another significant move to block the proposed merger between Samsung C&T Corp. (000830, -1.79%) and Cheil Industries Inc. (028260, -3.28%), U.S. hedge fund Elliott Associates has bought a 1 percent stake in Samsung Fire & Marine Insurance Co Ltd., which is a shareholder in C&T.

The share purchase by Elliott has strategic importance because under South Korean law, an investor with at least a 1% stake can sue the company’s directors and has the right to see who the other shareholders are.

The share purchase was confirmed by Samsung Fire and Marine without any details while both Elliott and Samsung SDI refused to comment on the matter.

Elliott is the third biggest shareholder in Samsung C&T with a 7.1% stake in the company.

Meanwhile, the head of the corporate analysis firm CEO Score, Park Ju-gun, expressed the view that these investments give Elliot more leverage over the fate of the C&T Chiel merger plan. This ultimately gives Elliott a greater say in the Samsung Group restructuring.  

Park added that while the Samsung group currently has uncertainty regarding the condition of Chairman Lee Kun-hee, the company is attempting to wrap up the restructuring process as quickly as possible within this year. Park also stated that Elliott is clearly aware of this.

Samsung C&T would need to secure a two-thirds majority at a shareholders meeting scheduled to be held on 17 July for the merger plan to be approved. The company says it cannot thrive as a standalone firm, hence the synergy it is looking for in the merger with Chiel.

In a separate advisory given by Glass, Lewis & Co, shareholders were also urged to reject the deal. The proxy-advisory company views the merger process too short and with insufficient transparency. The merger further offered questionable strategic merit as well as poor financial terms for shareholders.

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