Samsung C&T Holders Should Reject Merger, Proxy Adviser Says

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Samsung C&T Corp. shareholders should vote against a takeover by affiliate Cheil Industries Inc., proxy adviser service Glass Lewis & Co. said.

The merger has questionable strategic merits, poor financial terms, regressive deal protection and follows an opaque process, Glass Lewis said in the report. The deal is being fought by activist shareholder Elliott Associates LP.

Glass Lewis’s report comes after a more favorable view of the deal by a South Korean court, as the battle between Elliott and South Korea’s biggest conglomerate continues to twist and turn ahead of a shareholders’ meeting to decide the outcome on July 17. The merger is a key part of Samsung’s attempt to complete a once-in-a-generation leadership transition.

The deal is “profoundly unattractive for SCT investors and exceedingly advantageous for Cheil,” Glass Lewis said, referring to Samsung C&T. The company’s efforts to win support “are emblematic of a boardroom more concerned with forcing a preferred transaction to completion than addressing the significant and legitimate concerns of its unaffiliated investor base,” it said.

Cheil’s takeover would tighten the grip of 47-year-old Lee Jae Yong, the Samsung founder’s grandson, as he positions himself to take control of the chaebol, a collection of 67 companies generating about $270 billion in annual revenue. C&T owns about $10.7 billion of group company shares, making it a vital asset for Lee and his siblings who control Cheil.

Elliott, led by U.S. billionaire activist investor Paul Elliott Singer, has argued that the deal would pass 7.8 trillion won ($7 billion) of C&T book value to Cheil without compensation. The first of two injunctions filed by Elliott to prevent the deal was rejected by a Seoul court, with a ruling on the second expected before the July 17 shareholder meeting.

“We are pleased to see that independent specialist advisers agree with our position that the proposed merger is without merit,” Elliott said in an e-mailed statement in response to the Glass Lewis recommendation. “It is neither fair to nor in the best interests of shareholders.”

Large U.S. institutional fund managers often follow the recommendations of advisory firms including Glass Lewis. Another, Institutional Shareholder Services, is expected to issue its assessment by the end of this week.

(Updates with comment from Elliott in seventh paragraph.)
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