By Se Young Lee
SEOUL (Reuters) - Win or lose in its bid to derail an $8 billion (₤5.12 billion) Samsung Group merger on Friday, U.S. hedge fund Elliott Associates is likely to remain an irritant for the biggest of South Korea's powerful conglomerates.
Even if construction firm Samsung C&T Corp secures the two-thirds of shares voted on Friday needed for a buyout offer from sister company Cheil Industries, Elliott shows no sign of going away. The fund is widely expected to continue challenging Samsung with lawsuits as a shareholder that would have more than 2 percent of the merged firm.
As Elliott sees it, the offer undervalues C&T. At stake for Samsung is a deal that is key to cementing the founding Lee family's control as management succession looms, consolidating stakes in affiliates including tech giant Samsung Electronics (LONDON:0593xq) Co Ltd.
"Elliott will continue to harass Samsung," said Park Ju-gun, head of corporate analysis firm CEO Score.
Regardless of the outcome, the high-profile spat is expected to leave the family-run conglomerates, known as "chaebol", that dominate South Korea business treading more carefully in considering options for their own succession planning.
Samsung itself is bracing for a long haul. "We expect Elliott to continue participating in management matters and set forth various demands," said Yoon Yong-am, chief executive of Cheil advisor Samsung Securities.
In a proxy battle that has spread to South Korea's courts and the front pages of its newspapers, Samsung has lined up nearly a third of C&T voting shares - or more than three quarters of those held by investors who have publicly declared their intentions.
PROTRACTED BATTLE?
The vote is expected to be close, although investors appear to be betting the merger will succeed, sending shares in C&T and Cheil up 3.4 percent and 5.7 percent, respectively, on Thursday.
If it blocks the deal, Elliott has already hinted it would use its 7.1 percent stake to try and unseat board members of C&T. At CEO Score, Park said Elliott could also opt to increase its stake in the merged company to 3 percent, which would empower it to call shareholder meetings and propose ballot initiatives demanding higher dividends or share buybacks.
The hedge fund, controlled by Paul Elliott Singer, declined to comment on its post-vote plans.
In a sign it may be readying a protracted legal battle, Elliott has bought 1 percent stakes in Samsung SDI Co Ltd and Samsung Fire & Marine Insurance Co Ltd, both of which own C&T shares.
The stakes are sufficient under South Korean law to entitle Elliott to sue directors of those two companies, potentially arguing that by supporting the C&T-Cheil Industries deal they hurt the interests of their own shareholders.
For Samsung's controlling Lee family, rejection of the deal would remove a smooth option for generational management transfer at the group, whose 73-year-old patriarch Lee Kun-hee remains hospitalized since a heart attack last year.
Cheil has said it won't make another offer for C&T if the deal fails, although some analysts believe Samsung may try again at a later date.
"It will cost Samsung Group trillions of won (billions of dollars) if they can't get this deal and have to use other means to secure management control," said CEO Score's Park.
