International advisory firm Institutional Shareholder Service released a statement on Friday opposing the merger between Samsung C&T Corporation and Cheil Industries.
With foreign investors holding a 33.9 percent stake of Samsung C&T Corporation, the opposition from ISS is again making the merger between the Samsung units uncertain. Amid the opposition from foreign advisors and investors, a battle between Samsung C&T Corporation and US hedge fund Elliott is expected to become fiercer at the general shareholders' meeting set on July 17.
The statement of ISS said that "The merger between Samsung C&T Corporation and Cheil Industries is significantly disadvantages to shareholders of Samsung C&T Corporation," adding that "Potential synergy cannot be undervalued. The sales target through the merger is excessively positive."
Unlike the local court decision, it said the ratio of merger which is 1:0.35 is unfavorable to Samsung's shareholders.
ISS said, "When shareholders of Samsung C&T Corporation opposes the merger, this may pose a risk of bringing down stock price but this can also be an opportunity to get reasonable value assessment in the market."
ISS is a company providing instructions to investors based on analysis of shareholders' meeting of each company. As a private firm, its statement has no legal binding but it is known that multiple hedge funds and institutional investors are following the advice of ISS when exercising their voting right.
Market watchers said the ISS statement will affect the decision making of foreign investors at the general shareholders' meeting slated to be held on July 17. Currently, foreign investors including Elliott have a 33.61 percent stake of Samsung C&T Corporation.
Regarding the ISS statement, Samsung C&T Corporation said, "The ISS statement did not fully reflect managment environment, expected effect of the merger, and the fundamental intention of foreign hedge funds."
Amid the opposition from Elliott and ISS, the National Pension Service, the largest shareholder with an 11.21 percent stake, is expected to play a significant role in the merger.
Samsung has around 35.5 percent stake favorable to the merger. The shareholders favorable to the merger are Samsung SDI (a 7.39 percent stake), Samsung Insurance (4.79%), Lee Kun-hee, chief of Samsung Group (1.41%) and Samsung Foundation (0.23%) and KCC (5.96%). Other asset management companies including Korea Investment Management are to reportedly vote in favor of the merger. Their stake is estimated to stand at around 7.5 percent. If Elliott can secure a 23 percent stake, it can block the merger.
The general view is that most local institutional investors including National Pension Service would vote yes to the merger as most of them have shares of both Samsung C&T Corporation and Cheil Industries. One variable may be that National Pension Service should pass sensitive issue to a special committee in exercising voting right comprising of outside experts.
One asset manager declining to be identified said, "With ISS urging opposing the merger, National Pension Service is put in a situation to make a difficult decision."
Samsung C&T Corporation is still expecting the merger as there have been multiple cases of successful mergers in the past despite the opposition from ISS. Last August, in the lead up to the merger between Italy's automotive industry company Fiat and American firm Chrysler, ISS urged the shareholders of Fiat to block the merger, but the merger was approved with around 80 percent votes. Here in South Korea, ISS opposed the reelection of internal directors of large companies CJ, SK C&C and Hyosung but the three companies all approved the agenda.
"We will strengthen the negotiation for the long-tern institutional investors which are less influenced by ISS in a bid to smoothly complete the merger," said Samsung C&T Corporation official declining to be identified.
