AFP - South Korea’s dominant Samsung conglomerate run by the country’s wealthiest family secured shareholder approval yesterday for the crucial merger of two affiliates, seeing off a formidable challenge from investor activists led by a combative US hedge fund.

The victory, following a bitterly contested proxy battle, will come as an enormous relief to the Samsung Group’s founding Lee family as it seeks to restructure the multi-headed corporation ahead of a generational transfer of power from ailing patriarch Lee Kun-Hee.

At a packed and sometimes fractious emergency meeting yesterday, shareholders of construction firm Samsung C&T voted in favour of a takeover by the group’s de facto holding company, Cheil Industries, in an all-stock deal.

Both companies saw their share prices plunge in the wake of the vote result, with C&T closing down 10.4 percent at 62,100 won, and Cheil down 7.7 percent 179,000 won.

The merger had been passionately opposed by a significant number of C&T investors, rallied by US hedge fund Elliott Associates the company’s second-largest single shareholder.

Elliott had argued that the takeover wilfully undervalued the C&T share price, at an unacceptable cost to its shareholders.

Samsung C&T executives insisted the deal made good business sense and would enhance shareholder value in the long-run, with a more competitive merged company that could target sales of 60 trillion won ($52 billion) by 2020.

“I am grateful for the shareholders who voted for the merger,” C&T chief executive Choi Chi-Hun told reporters.

“We will do our utmost to ensure their support is repaid in the form of heightened shareholder value,” he said. Turnout was high, with 83.6 percent of eligible C&T voting shares cast.

That left Samsung requiring 55.7 percent of the vote to secure the necessary two-thirds majority, and the finally tally in favour of the merger was 69.5 percent. For Samsung, victory was critical to its current strategy of streamlining and consolidating its group holdings into fewer, larger companies.
The family already controls Cheil and taking over C&T will solidify its grip on the entire conglomerate because the affiliate holds more than $10 billion in shares of Samsung Group units.

Elliot had complained that C&T was essentially being offered up in what amounted to a sweetheart deal that penalised its shareholders.

The hedge fund, which had also sought to block the merger in the South Korean courts, accepted the vote result, but hinted that it could pursue other avenues of opposition.

“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,” spokesman Richard Barton said in a statement.