[SEOUL] Shareholders met on Friday to vote on one of South Korea's most bitterly contested corporate mergers, with the country's dominant conglomerate, Samsung, facing an unprecedented challenge from stakeholder activists led by a US hedge fund.
The proposed merger of two Samsung Group units would see the group's de facto holding company, Cheil Industries, take over construction firm Samsung C&T in an all-stock deal.
For Samsung's founding Lee family, the merger is a crucial step in its strategy to consolidate its control of the giant, multi-headed conglomerate, ahead of a generational transfer of power from ailing patriarch Lee Kun Hee.
But a significant number of C&T investors, rallied by US hedge fund Elliott Associates - the company's second-largest single shareholder - have loudly contested the takeover, arguing that it wilfully undervalues the C&T share price.
"The company is trying to forcibly push through with the merger which is absolutely unfair and unreasonable," Elliott lawyer Choi Young-Ik told Friday's shareholder meeting.
"I sincerely urge you to vote against it," Mr Choi said.
Samsung C&T executives have argued that the takeover makes good business sense and will enhance shareholder value in the long-run, with a more competitive merged company that could target sales of 60 trillion won (S$71 billion) by 2020.
THE 'ONLY PATH' FORWARD
"Given the difficult global economic situation, the only path to secure the future of the company will be found in the merger, which will maximise synergy and help secure new growth engines," CEO Choi Chi Hun told the meeting.
Samsung needs a two-thirds majority shareholder majority to push the merger through.
Experts say the outcome is too close to call following weeks of intense campaigning and lobbying by both sides - in the courts, the media and on the doorsteps of individual retail shareholders.
A defeat for Samsung would be a landmark moment for shareholder activism in South Korea, where family-run conglomerates, or "chaebol," dominate the economy and are used to running their businesses with minimum investor interference.
For Samsung it would be a major blow that could have a significant knock-on effect for its strategy of streamlining the group into fewer, larger companies.
The family already controls Cheil and taking over C&T would solidify its grip on the entire conglomerate because the affiliate holds more than US$10 billion in shares of Samsung Group units.
Mr Elliot's argument is that C&T is being offered for takeover in what amounts to a sweetheart deal that penalises its shareholders.
"We think that this merger ought not to happen as it's structured," the hedge fund's owner, Paul Elliott Singer, told an investor conference in New York on Wednesday.
"We think it's also important for the way Korea and Korean corporate governance is perceived in the world," Singer said.
Nationalist voices in the South Korean media have sought to portray the proxy battle as corporate Korea's fight against pernicious outside influence, with some commentaries straying into far-right territory with remarks about ruthless Jewish financiers.
The remarks forced Samsung to issue a statement, condemning anti-Semitism "in all its forms." Many eyes Friday were on the state-backed National Pension Service (NPS) - the biggest single shareholder in Samsung C&T, with a near-12 per cent stake that could swing the final vote either way.
Last Friday, the NPS said it had reached a decision on how it would vote, but declined to reveal its intentions before the shareholders' meet.
In an unprecedented show of domestic shareholder activism, more than 3,000 individual investors have created an online forum aimed at blocking the C&T takeover.
Kang Dong Ok, an activist representing small shareholders, said Samsung had been playing a "dirty game" - knocking on the doors of people's homes and visiting them at their workplace.
"Some small shareholders who initially opposed the merger, have ended up giving them proxies to avoid further harassment," he told Friday's meeting.