Samsung Group narrowly defeated billionaire activist investor Paul Elliott Singer in a hotly-contested proxy fight that challenged the power of South Korea’s corporate dynasties.
Samsung C&T Corp. investors accepted an all-stock buyout offer from the group’s de facto holding company Cheil Industries Inc. on Friday, with shares of both companies plunging after the decision. Singer’s Elliott Associates LP had waged a six-week public campaign opposing the deal on grounds that the offer was too low for C&T investors.
The results pave the way for Samsung’s founding Lee family to tighten its grip over the nation’s largest conglomerate and extend Korea’s track record of repelling foreign corporate raiders. Elliott fell just short in its bid to derail the deal after rallying thousands of local individual investors to join its side in a departure from past contests.
“The outcome will no doubt have a big impact on Samsung’s succession plans,” Chae Yi Bai, an analyst at Center for Good Corporate Governance, said before the vote. “After seeing Samsung’s reaction in regard to this deal, foreign investors’ perception about South Korea’s capital market and chaebols will sour.”
C&T shares dropped 10 percent in Seoul after the vote. Cheil slumped 7.7 percent.
A total of 69.5 percent of votes cast at the meeting Friday were in favor of Cheil’s offer, C&T Chief Executive Officer Choi Chi Hun said in Seoul. That is less than 3 percentage points above the two-thirds majority needed to succeed. The meeting rejected Elliott’s proposals on dividends.
“Elliott is disappointed that the takeover appears to have been approved against the wishes of so many independent shareholders and reserves all options at its disposal,” the fund said in an e-mailed statement.
Cheil Industries has said it wants C&T because the combined company would be more competitive in overlapping businesses -- construction, fashion and trading.
What the Samsung companies didn’t say publicly was that defeat would have been a blow to the Lee family and could have prompted foreign investors to renew their interest in South Korean companies.
The deal’s passage will solidify heir-apparent Lee Jae Yong’s hold over Samsung Group because C&T holds more than $10 billion in shares of group units.
“The winning will surely help Lee Jae Yong to take one step closer to the eventual handover of power,” said Lee Jisoo, an attorney at Law & Business Research Center.
Investors attending the meeting had to battle through crowds and protesters to make it to the aT Center in Seoul. With all 600 seats in the main room filled before the meeting even started, some were forced to stand or try an overflow area on another floor.
One man in a white Korean traditional outfit shouted at Choi as he entered the venue, then charged at him before the man was repelled by the CEO’s entourage. Others held up signs criticizing the deal and Samsung Group.
The Samsung-Elliott fight was rare in a country where institutional and retail investors seldom oppose company plans that are put forth at shareholder meetings.
Korea’s biggest proxy fight began in May when Cheil announced that it would buy C&T, the country’s biggest builder. The Lee family sought the deal to increase their hold as Samsung goes through a leadership transition after group patriarch Lee Kun Hee had a heart attack last year.
The chaebol is a collection of 67 companies generating more than $250 billion in annual revenue, and traces its roots to C&T, which was the first company the group established in 1938. It has expanded into renewable energy with a wind farm development project in Canada, and it also built the world’s tallest building in Dubai.
Elliott’s opposition encouraged other minority investors, which account for a combined 24 percent of Samsung C&T when excluding institutions, to take a more active stance.
“Part of growing up and having good corporate governance is to have shareholder power,” said James Rooney, Seoul-based chief executive officer of consulting firm Market Force Co. “Elliott has certainly created a huge awareness and education and potentially a paradigm shift as small shareholders start to realize they do matter.”
Even some investors that supported the deal have been critical of Samsung and Cheil, owner of the Everland theme park.
Ha Ki Chul, who owns 760 shares, invoked the memory of the chaebol’s late founder in his criticism.
“I am very disappointed in the way this merger has been proposed,” Ha, who owns 760 shares, said at the meeting. “Lee Byung Chull is buried near Everland and I think he will wake up from the dead if he finds out what is happening with Samsung.”