Samsung completes merger of de facto holding company after public spat with US fund

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Samsung Electronics models show off their wares in this promo.

Samsung C&T becomes the de facto holding company of Samsung Group — known mostly for its crown jewel, Samsung Electronics — reinforcing control of the sprawling conglomerate by the founding Lee family and its heir apparent Lee Jae-yong.

[This story was written originally for ZDNet Korea on Sep. 2, 2015.]

Samsung C&T Corporation and Cheil Industries on Tuesday officially completed their merger as the new integrated Samsung C&T, the company announced.

Following the merger’s completion, Samsung C&T becomes the de facto holding company of Samsung Group —  known mostly for its crown jewel, Samsung Electronics — reinforcing control of the sprawling conglomerate by the founding Lee family and its heir apparent Lee Jae-yong, also known as JY Lee, analysts in Seoul said.

The company said it now has combined assets totaling 40 trillion won and aims to generate sales of 60 trillion won annually from 2020 by capturing “new business opportunities in fast growing industries to become a global business partner that offers a full-range of products and services,” the company said in a statement.

“The merger between Cheil and Samsung C&T was done because C&T owns 4 percent of Samsung Electronics. JY Lee is the largest shareholder of Cheil Industries,” said Jonathan Hwang, IT analyst at KDB Daewoo Research in Seoul. “So, JY Lee can now have an indirect ownership by merging these two companies. That 4 percent stake is what he wanted.”

Investors gave the merger the go-ahead during a shareholders meeting on July 17 after a prolonged, public and often bitter dispute that pitted Samsung against US-based billionaire hedge fund manager Paul Elliott Singer.

Samsung won approval for the merger with 69.53 percent of votes cast, or 92.02 million shares out of 132.35 million shares, slightly more than the required two-thirds majority.

Elliott Management, which was the third-largest shareholder in Samsung C&T, accused Samsung of low balling the value of Samsung C&T and sought to block the merger bid through a proxy vote and unsuccessful lawsuits.

The National Pension Service (NPS), an institutional Samsung investor _ in Cheil Industries with a 5 percent stake and in Samsung C&T with an 11.6 percent stake _ cast an influential bloc of votes in favor of the deal and central to Samsung’s victory. The NPS has stakes in nearly all the big conglomerates in South Korea.

When the deal was announced on May 26, Cheil’s stock price was 188,000 won, but trading three months later on Tuesday put its share price at 170,000 won, a 9.5 percent loss. Samsung C&T’s share price when the deal was announced was 63,500 won but, on Aug. 26, when trading was suspended, the price was 48,100 won, a loss in valuation of 24.2 percent. Trading will commence as new newly integrated Samsung C&T on Sep. 15.

“The stock price is not as good as expected. That is the problem that the current management is facing. They will likely respond more aggressively as a result to improve their financial performance,” said Shin Geon-cheol, Kyunghee University professor of business management. “The four major business units have merged into one. And, as you know, sometimes it is not so easy to have that synergistic effect”

The new integrated Samsung C&T is comprised of four distinct business groups each led by its own chief executive officer: the Engineering & Construction business will be led by Choi Chi-hun; Trading & Investment will be led by Kim Shin; its fashion business will be led by Yoon Ju-hwa; and its Resorts & Construction business will be led by Kim Bong-yung.

Samsung C&T said that “synergy” among its business units is achievable and will benefit shareholders. “New enterprise-wide units will be formed and a synergy committee for the four CEOs will generate cross-business benefits and ensure transparency and open communication,” the company said in a press statement.

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