Korean court rules in favor of Samsung merger

Seoul court handed a win to Samsung over Elliot Wednesday, putting the Korean conglomerate in an advantageous position in collecting friendly votes ahead of the shareholders` meeting on July 17. People in the business circle said that Samsung Group secured a legal basis for the merger between Samsung C&T and Cheil Industries, which is seen as a key step in the leadership succession at Korea`s biggest family-run conglomerate.

The key issue in court ruling was how the court would assess the stock swap ratio -- one Samsung C&T share for 0.35 shares in Cheil. Since the merger proposal announcement in May, U.S. hedge fund Elliot announced on June 4 that it acquired a 7.12 percent stake in Samsung C&T and has since argued that the merger ratio was unfair. It claimed that the stock swap ratio was calculated at a time when C&T`s share prices were low and Cheil`s were high and so C&T`s asset value was not properly reflected in stock prices. Elliot said the swap ratio should be raised to 1:1.6 from 1:0.35.

However, the Seoul Central District Court said in the ruling: "The merger ratio was calculated in accordance with relevant laws... and cannot be seen as unfair."

A high ranking Samsung official said, "We had waited for Samsung C&T`s share prices to rise in order to set the time for merger, but it wasn`t easy since C&T had significant losses in its Middle East construction businesses," adding, "The merger ratio could have gone down further if we had waited more."

Samsung now has good reason to pursue the merger following the latest ruling. The court ruled, "There is no evidence that the merger is being pursued only for the interest of the Samsung Group`s family members, regardless of other shareholders` interests."

Elliott has tried to block the merger saying it is intended to solidify control of Samsung`s founding family over Samsung and smooth out the third-generation succession. It had filed two lawsuits, one of which called for a court order to prevent a Samsung shareholders` meeting on July 17 to approve the proposed merger. At an interrogation on its injunction request June 19, Elliott said the merger was only for the succession of Samsung`s founding family, adding that it is a means for Samsung family to obtain 4.1 percent of Samsung Electronics` shares held by Samsung C&T.

The outcome is likely to affect the decision by the Institutional Shareholder Services, which gives voting recommendations and governance advise and has huge influence on overseas investors. The ISS will release its opinion on the merger after the court ruling. If it votes in favor for the merger, a significant number of foreign investors are likely to vote yes. The National Pension Service, which had voted against the proposed merger between SK C&C and SK Holdings, also have weak justification to vote against the Samsung merger.

Samsung however is not loosening tension. Samsung C&T on Wednesday opened a homepage New Samsung C&T (www.newsamsungcnt.com) and explained there the justification of the merger. Samsung C&T CEO Choi Chi-hoon met with reporters after the weekly meeting with Samsung`s CEOs and said, "We are continuing to persuade shareholders." When asked about the National Pension Service, he said, "We believe the (National Pension Service) will make a decision that benefits the country and shareholders."