Following is the third in a four-part series featuring the battle between Samsung C&T and Elliott Associates over the Korean builder’s merger with Cheil Industries and its implications. ― Ed.
By Bae Hyun-jung
Local securities companies gave a positive assessment of Samsung Group’s plan to merge two of its pillar affiliates ― construction and trading arm Samsung C&T and the de facto holding company Cheil Industries.
Shareholders of Samsung C&T are scheduled to meet Friday to cast their final votes on whether or not to be merged into Cheil Industries.
Samsung C&T and its group have claimed that the integration will rev up business synergies. But opponents have criticized it as infringing on the rights of the company’s shareholders due to its 0.35 to 1 swap ratio, insisting that it is a scheme to reinforce the control of the conglomerate by Samsung heir apparent Lee Jay-yong.
The domestic investment circles, however, suggested that the merger will be a relief for Samsung C&T, which had seen its business slide over the past few years.
“(If the merger fails), Samsung C&T is likely to face a more drastic fall in its stock price than Cheil Industries,” Korea Investment & Securities Co. said in its report last week.
This was in line with the forecast of the Institutional Shareholder Services, the world’s largest advisory body for stockholders.
But the securities company claimed that the current swap ratio is justified. The ISS, along with Samsung C&T stakeholder Elliot Associates, said the ratio undervalued Samsung C&T and it was excessively reliant on the potential growth profile of Cheil Industries.
Hyundai Investment & Securities, too, blamed the ISS for being short-sighted on the value of the two affiliates.
“When the merger plan was announced, the stock price of Samsung C&T soared 15 percent, whereas that of Cheil Industries only rose 6.7 percent, which shows that the integration was more advantageous for Samsung C&T and relatively unfavorable for Cheil Industries,” it said through a report.
It also added that a rejection of the merger would deliver a blow not only upon the two corresponding affiliates, but on the entire conglomerate as well.
“Should the corporate succession process experience setbacks, this may create a negative investment mood for key affiliates, especially the biotechnology business, which requires mass funding.”
Eugene Investment & Securities forecasted that Samsung Group will push ahead with its management succession blueprint, regardless of the result of the Samsung C&T stockholders’ decision.
“(If the ongoing merger fails), Samsung Group is expected to take a detour and may possibly sell off its stakes in Samsung Electronics to Cheil Industries, in which case the whole group reorganization plan will be delayed,” its report said.
Daishin Economic Research Institute, a private think tank, spoke more actively for Samsung’s merger plan.
“The process of the merger is so far legitimate and the disputes on corporate value assessment are not crucial (enough to affect the merger itself),” said researcher Ahn Sang-hee through a report.
Despite backlash from some stockholders, including Elliot Associates, Samsung C&T has more to gain from its integration with the group’s holding company, the report also said.
“Samsung C&T’s return on equity ratio stood at 2.2 percent recently, far below the 9.9 percent of Cheil Industries, which makes it hard to say that its price-to-book ratio was undervalued amid the merger discussion,” it said.
“The forecast for its operating profits, too, has been on a constant decline for years and is highly likely to dip further in upcoming years.”
(tellme@heraldcorp.com)