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South Korea fund to abstain from Samsung merger vote, wants share buybacks

Saturday, October 25, 2014 - 13:22
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South Korea's National Pension Service does not support the merger of two Samsung Group units and plans to ask them to buy back its holdings in the pair, an NPS spokeswoman said on Saturday.

[SEOUL] South Korea's National Pension Service does not support the merger of two Samsung Group units and plans to ask them to buy back its holdings in the pair, an NPS spokeswoman said on Saturday.

She said NPS will not attend shareholders' meetings on Monday, Oct 27, at which Samsung Heavy Industries and Samsung Engineering will seek approval for the first to effectively absorb the second unit.

NPS, the world's fourth-largest pension fund, currently owns 5.9 per cent of each of the two Samsung units, the spokeswoman said.

On Sept 1, Samsung Heavy announced the plan to absorb Samsung Engineering for about US$2.5 billion, the latest step in a restructuring at South Korea's largest conglomerate.

Since the merger plan was announced, shares of both units have fallen more than 20 per cent. The plan could be derailed if enough shareholders join NPS in asking for stock buybacks or oppose the merger at Monday's meetings.

At the offered buyback prices - more than 15 per cent above the current share prices - the combined NPS stakes in the two companies are worth about 520 billion Korean won (US$492.2 million).

Under South Korean rules, shareholders who decide not to participate in a merger can exit by asking the merging companies to buy back their stakes.

Since the merger announcement, shares in Samsung Heavy have fallen 21 per cent as of Friday, while those in Samsung Engineering have dropped 24.5 per cent. Analysts have said the companies' low-margin projects under construction and difficulty of finding short-term synergy between them have contributed to the price drops.

If the merger is approved on Monday, NPS only wants to retain its right to ask for a stock buyback, its spokeswoman said.

It is unclear what other third-party shareholders will decide. As of Friday, if about 18 per cent of Samsung Heavy shareholders or about 19 per cent of Samsung Engineering shareholders ask for stock buybacks, the merger agreement could be canceled by one of the companies, according to a Samsung Heavy filing in September.

A merger needs the approval of two-thirds of shareholders attending the meeting and one-third of all shareholders to pass, under South Korean rules. As of June, about 22 per cent of Samsung Engineering and 24 per cent stake of Samsung Heavy were held by Samsung Group affiliates.

A Samsung Heavy spokesman and a Samsung Engineering spokeswoman could not be reached.

REUTERS