SK Group overcame opposition from South Korea’s biggest institutional investor by winning a vote to push through a controversial merger of two units.
Investors at SK Holdings Co. and SK C&C Co. approved a plan for the affiliates to merge at their respective shareholders meetings on Friday, officials at both companies said. The National Pension Service, which manages more than $400 billion in assets, this week made the rare move of opposing the deal on grounds it would undermine minority investors.
The result paves the way for billionaire Chey Tae Won to solidify his family’s control over the country’s third-largest conglomerate. The Chey family’s victory also comes less than a month before Korea’s biggest business empire, Samsung Group, faces a proxy fight against a U.S. activist fund to pursue a similar deal.
The Ministry of Health and Welfare, which oversees the pension fund that owns 7.19 percent of SK Holdings and 6.89 percent of SK C&C, voiced its opposition to the deal on Wednesday. SK required approval from two-thirds of the meeting attendees and one third of all shareholders to pass the deal.
SK Holdings acknowledges the NPS’s decision and will work to enhance shareholder value, SK Holdings Chief Executive Officer Cho Dae Sik said.
“The merger will enable the company to identify new businesses for future growth,” Cho said. “The company needs to reform amid uncertainty in the global economy and weakening domestic consumption.”
A more closely watched deal is coming to a vote on July 17.
Samsung Group’s Lee family, seeking to solidify control over the nation’s biggest chaebol amid a once-in-a-generation leadership transition, is trying to complete a deal that’s similarly structured to SK’s in the face of opposition led by U.S. activist investor Paul Elliott Singer, whose funds have said the offer is too low.
As in the SK proposal, Samsung is seeking to merge two units with group de facto holding company Cheil Industries Inc. proposing to buy Samsung C&T Corp. via an all-stock transaction.
Cheil, whose offer has been valued at below C&T’s share price ever since it made the proposal in late May, was restricted from making a higher bid because of Korean rules requiring such deals to be made based on a pre-determined formula that averages prices over the preceding month.
The regulation is designed to protect minority shareholders by preventing family-run groups from bailing out affiliates through exorbitantly high offers.
The deal is important for the Lee family, particularly heir apparent Lee Jae Yong, because C&T holds more than $10 billion of shares in Samsung Group units.
The National Pension Service, C&T’s biggest shareholder with a 10.15 percent stake, will be key in determining the outcome of the vote. Elliott’s funds, which hold 7.12 percent of C&T, have vowed to oppose the deal.