Small Shareholders Vent Samsung Frustrations, Side With Elliott

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It’s a Friday evening in Seoul and the BBQ fried chicken joint in the Gangnam district is filled with ants angry with the Samsung Group.

Only these aren’t insects. Ants are what individual shareholders are called in South Korea because of their diminutive influence. On this evening, about a dozen of them have gathered to discuss the prospects of ants making a difference in Samsung Group’s feud with billionaire activist investor Paul Elliott Singer, a fight that’s turning into one of the biggest proxy contests the country has ever seen.

These ants are part of a group of more than 3,000 people in an online forum where they’ve pledged to side with Singer and help block Samsung’s proposed merger of two units. With less than 1 percent of total votes, forum members may fall short of swaying this week’s Samsung C&T Corp. shareholder meeting but their emergence is a sign that activism is on the rise in the country and that companies will find it more difficult to ignore smaller investors.

“Until recently, movements by minority shareholders like what we can see with Samsung C&T’s case had been very rare in South Korea,” said Chae Yi Bai, an analyst at the Center for Good Corporate Governance. “More and more, people are becoming aware of shareholder rights and this has led to people considering even foreign investors as allies.”

Pecan Pie

While none of the people at the chicken diner agreed to be named, several said they bought C&T stock after learning that Singer’s Elliott Associates LP fund was challenging C&T’s proposed takeover by Samsung Group’s de facto holding company, Cheil Industries Inc., on grounds the offer was too low. One person who’d only identify himself by the pseudonym Kim Young Woo, said a C&T official came over to his home earlier this month, brought over some pecan pie and talked about how the merger would benefit shareholders.

The online discussion site, named Solidarity of Samsung C&T Minority Shareholders in Korean, on Naver Corp.’s website is littered with similar stories. Some members wrote that C&T employees visited their homes or offices armed with watermelons and walnut cakes.

Though it didn’t go into specifics, C&T said in an e-mail that it’s following legally proper procedures to encourage shareholders to delegate their votes to the company and that it’s carefully taking investors’ opinions into account.

‘Vote NO’

Samsung has good reason to be serenading individuals. Excluding institutional investors, minority shareholders hold a combined 24 percent in C&T, according to company data.

The company issued an advertisement on the front pages of most of South Korea’s newspapers and Internet search engines on Monday, urging shareholders to delegate their votes to C&T.

Elliott said it’s encouraged by the support it’s gotten from individual investors.

“We have already received a very significant number of proxy votes against the proposed merger from retail shareholders, reflecting the outpouring of feeling against the proposed merger,” the U.S.-based activist fund said in a statement. “We continue to urge all shareholders to vote NO.”

Elliott has 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 have sided 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.

Back at the fried chicken joint, the C&T shareholders met soon after the state-backed National Pension Service, the building-and-trading company’s biggest shareholder, on Friday said it made a decision on its position, though it declined to say which way it will vote. Korea Economic Daily reported the fund would back Samsung, an outcome minority shareholders like Lee Sang Ho had foreseen.

Swing Vote?

“NPS fund managers make decisions as though they’ve never read a single page of an investment-theory textbook when it comes to Samsung-related issues,” Lee, the minority shareholder, wrote on the Internet forum. “Samsung Group has lost the people’s trust.”

Getting the backing of the NPS, which holds 11 percent of C&T’s voting rights, would go a long way for Samsung Group’s founding family to get what it needs -- a two-thirds majority of votes cast -- for the deal to go through at the July 17 C&T shareholder meeting. The family, Samsung affiliates and ally KCC Corp. have about 20 percent of the vote, while Elliott has about 7 percent.

Samsung C&T shares rose 0.9 percent to close at 65,000 won in Seoul on Monday, while Cheil Industries climbed 2.5 percent.

Organizers of the forum are encouraging members to go to the presidential Blue House website to back Lee’s petition requesting for an extraordinary audit on the NPS.

In the discussion site, organizers helps members get information on how to exercise their rights, including how to delegate their voting rights to Elliott, how to vote against the merger, and how to avoid mistakes, including accidentally giving the voting rights to Samsung.

“Samsung C&T’s case would have made companies in Korea realize that minority shareholders cannot be slighted anymore,” Chae at CGCG said.

For more, read this QuickTake: Samsung

(Updates with Samsung C&T advertisement in 9th paragraph.)
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