Two major affiliates of Samsung Group, South Korea's largest family-run conglomerate, successfully merged Friday despite a U.S. hedge fund's opposition, paving a way for management succession from Chairman Lee Kun-hee to his only son Jae-yong.
Cheil Industries and Samsung C&T convened their respective shareholders' meetings to win approval for a merger plan between the affiliates. Cheil shareholders unanimously approved the all- stock deal, and more than two-thirds of C&T shareholders voted in favor of the merger.
The two Samsung units announced the takeover plan on May 26 of Samsung C&T by Cheil Industries, the group's de-facto holding company controlled by Samsung Electronics Vice Chairman Jae-yong, heir apparent to Chairman Lee.
The 8.9 trillion won (7.8 billion U.S. dollars) of all-stock deal hit a snag as U.S.-based hedge fund Elliot Associates, the third-largest shareholder of Samsung C&T, expressed opposition citing the undervaluation of the construction and trade unit. The merger ratio was 0.35 Cheil shares for each C&T share.
Elliot with a 7.12 percent stake in Samsung C&T filed two lawsuits, including one seeking to block the convening of the shareholders' meeting and the other to stop C&T from selling 8.99 million treasury shares, or 5.76 percent stake, to its friendly shareholder KCC Corp.
Courts ruled in favor of Samsung in the two suits, and the appeals courts dismissed Elliot's request in both cases.
Samsung C&T garnered approval from 69.53 percent of shareholders, who attended the shareholders' meeting or delegated their voting rights. The participation rate was 83.57 percent of the total outstanding shares, indicating a 58.91 percent approval from the combined shareholders.
Samsung C&T made all-out efforts to gain approval as the successful merger facilitates the founding Lee family's power transfer from Chairman Lee, who has been bedridden since May last year after heart attack, to his only son Jae-yong.
The construction unit put ads in decades of newspapers, broadcasters and Internet news outlets to gain support from individual shareholders, which had a combined 24.33 percent stake in C&T. The unit is important as it has a 4.1 percent stake in the group's crown jewel Samsung Electronics.
The merger would solidify junior Lee's grip on power as a new entity, set to be launched on Sept. 1, will serve as the group's de-facto holding company. The new entity will use the name of Samsung C&T, in which Jae-yong will have a 16.5 percent stake. His two younger sisters will have a 5.5 percent stake respectively.
The launch of the new holding company is expected to simplify a complex web of the group's cross shareholdings. Cheil Industries, in which Jae-yong was the largest shareholder, has controlled Samsung Life Insurance that had a large stake in Samsung Electronics controlling two major affiliates.
The two affiliates have controlled Samsung C&T, which had a large stake in Samsung Electronics. Such complexity would be simplified to a structure of the new Samsung C&T that would directly control Samsung Electronics and Samsung Life Insurance. Samsung Group launched the father-to-son management succession in mid-2013 by merging, breaking out and listing some the group's affiliates.