Activist investor Paul Elliott Singer may have lost to Samsung Group today but the narrow margin of defeat sends a warning to South Korea’s corporate dynasties that they should brace for more shareholder scrutiny.
At Samsung C&T Corp.’s shareholder meeting on Friday, 69.5 percent of votes were cast in favor of accepting a buyout offer from the parent group’s de facto holding company, Cheil Industries Inc. That’s only about 2.9 percentage points above the minimum two-thirds majority needed to approve the deal.
By going after the nation’s biggest conglomerate and nearly winning, Singer’s Elliott Associates LP fund has set a blueprint for other shareholder activists to follow. If the deal had collapsed, it would have set back the Samsung founding family’s ambitions to solidify its control over the business empire amid a leadership transition -- a situation other Korean family-run corporate giants are bound to face soon.
“The narrow results will be shocking for Samsung and will make Samsung realize that they have a lot to do in order to win back investors and the market’s trust,” said Kim Sang Jo, executive director at the Solidarity for Economic Reform and an economics professor at Hansung University in Seoul. “The results also send a warning to Korea Inc.’s chaebol families that they too should consider shareholders’ value more now and won’t be able to do things the old way and get away with it.”
After a six-week public brawl, Samsung C&T’s shareholders met in Seoul on Friday to decide the deal’s fate. Results came more than three hours after the meeting started, an unusually long time for such gatherings in Korea that underscored how contested the merger plan was.
Shares of Samsung C&T, Korea’s largest builder, fell 10 percent in Seoul trading after the results were announced, while those of Cheil dropped 7.7 percent.
“It’s a bittersweet victory,” said Lee Jisoo, an attorney at Law & Business Research Center. “It has shed too much blood. Elliott’s unexpected attack must have been a big surprise for Samsung, the battle may slow other potential deals planned by the group and management will give it a second thought now.”
The Samsung-Elliott fight was rare in a country where institutional and retail investors seldom oppose company plans that are put forth at shareholders meetings.
For Samsung, the purchase gives the founding family a greater hold of the conglomerate because C&T owns more than $10 billion in shares of Samsung Group units, including a a 4.1 percent stake in the group’s crown jewel, Samsung Electronics Co.
The market value of those shareholdings alone exceed the value of Cheil’s all-stock offer, a discrepancy that lies at the heart of Elliott’s opposition.
Elliott, which has a 7.1 percent stake in C&T, had gotten others on its side. Investors including APG Groep NV, the world’s second-largest pension fund; Canada Pension Plan Investment Board and Aberdeen Asset Management Plc had said they would side with the activist. Also, two of the most influential proxy advisory firms, Institutional Shareholder Services Inc. and Glass Lewis & Co., have told investors to back Elliott.
More surprisingly, Elliott’s opposition also encouraged other minority investors, which account for a combined 24 percent of Samsung C&T, to take an active stance on casting their votes.
At the shareholder meeting, those attending had to confront crowds and protesters holding up placards. All 600 seats in the main hall were taken, forcing investors to stand or try for space in an overflow area on another floor set up to handle 400 people, the company said.
Tensions flared ahead of the vote as a man in a white Korean traditional outfit shouted at Choi as he entered the venue, charging at him before he was repelled by the CEO’s entourage.
For more, read this QuickTake: Samsung