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[SEOUL] South Korea's national pension fund, which holds what could be the swing shareholder vote in Samsung Group's contentious US$8 billion merger plan, may outsource its decision to an external panel, sources say.
The National Pension Service (NPS) is the largest investor in South Korean stocks. It has substantial stakes in companies including Samsung C&T - the battleground between the powerful Samsung Group and US hedge fund Elliott.
Elliott, in a rare case of shareholder activism in a country long wary of foreign funds, is trying to block the sale of Samsung C&T to sister firm Cheil Industries, the de facto holding company of Samsung Group. Elliott says Cheil's offer undervalues C&T, in which the fund has a 7.1 per cent share.
Samsung C&T shareholders friendly to the takeover hold a combined 20 per cent stake in the construction firm. The deal needs the support of least two-thirds of votes at a shareholder meeting on July 17. NPS owns a 10.2 stake, so its vote could sink or seal a deal key to ensuring a stable leadership transfer in Samsung's founding Lee family.
NPS, the world's third-largest pension fund with US$444 billion in assets, is mandated to vote against decisions that could damage shareholder value. When a case is less clear, which may apply in the Samsung deal, it calls on an external nine-member committee consisting of academics, think-tank researchers and a lawyer.
"Looking at shareholder value, it's about whether there will be a synergy effect through the merger," said a committee member, declining to be identified because he was not authorised to speak with the media. "Samsung says there is a synergy effect but doesn't say what kind and how much. There is some inadequacy in explanation."
The NPS is in a tricky position: It is under growing pressure to champion good corporate governance in a country where stocks have long traded at discounts to global peers due to opaque share structures and low dividends. But blocking the deal could batter C&T's share price.
Park Ju Gun, who heads corporate analysis firm CEO Score, said he expects NPS to vote for the deal even though he thinks it should align with Elliott. "NPS will argue that its goal is to make a profit and the deal will accomplish that. Another argument will be based on a half-baked notion of patriotism," he said.
NPS's Samsung C&T stake is worth about 1 trillion won (S$1.21 million). "There is a lot of market interest on this decision, so we're not going to rush it," an NPS spokesman said.
NPS casts thousands of votes every year, and calls on the external committee a few times annually on difficult votes. The committee members change every two years.
In an October parliamentary audit, NPS was criticised for investing in Japanese companies because of what a lawmaker called "crimes" during Japan's colonial occupation.
"It's subject to pressures from above, so NPS still has a hard time voicing its own opinions," said CEO Score's Park, who expects the NPS to push its decision to the outside panel to deflect criticism. "NPS will get lambasted regardless of what it does, so I think it'll opt to vote in favour and take the abuse."