A U.S. hedge fund, opposing a proposed merger of two Samsung Group units, has filed an appeal against a Seoul court's dismissal of its request to block the deal, the latest in a series of legal rows unfolding against South Korea's top conglomerate over the high-profile merger. 

Elliott Associates L.P. has been seeking to stop Samsung C&T Corp., the construction arm of Samsung Group, from being merged with Cheil Industries Inc., the de facto holding firm of the conglomerate, in an all-stock deal worth 8.9 trillion won (US$7.93 billion), saying it undermines shareholders' interests.

The hedge fund filed two injunctions with the Seoul court in early June asking to stop the builder from holding a July 17 shareholders meeting and restrict the voting rights of KCC Corp., which owns a 5.76 percent stake in C&T through the purchase of its treasury shares.  

The Seoul Central District Court rejected the first injunction on Wednesday. 

Nexus, a Seoul-based law firm representing Elliott, submitted a notice of appeal Friday to the Seoul High Court, according to the court. 

Elliott, the third-largest shareholder in C&T with a 7.12 percent stake, expressed disappointment over the court decision. In an online statement, it said it believes "its position will be fully vindicated on appeal" and "remains committed to preventing the proposed takeover from being consummated."

In the ruling, the lower court did not accept Elliott's claim that the proposed merger ratio of 0.35 Cheil share for 1 C&T share is unfair. It found that the terms of the merger plan were lawful as they have been laid out in accordance with local regulations.

The court is due to deliver its next verdict before the shareholders meeting, which will determine whether to validate KCC's voting rights.

The high-stakes takeover offer by Cheil is seen as a vital step for a smooth leadership transfer to Lee Jay-yong, the heir apparent of the family-run group, from his father and the group's patriarch, Lee Kun-hee, who has been bedridden for more than a year due to a heart attack. 

Samsung and Elliott have taken the battle to a proxy fight, trying to win the hearts of shareholders and investors to take each other's side. The two Samsung units held an unscheduled IR session in which they promised to boost shareholder value by paying shareholders more dividends in the future and improve their corporate governance.

Also Friday, corporate advisory firm Institutional Shareholder Services Inc. (ISS) said the latest merger plan "significantly disadvantages Samsung C&T shareholders," lending a voice to further to Elliott's claim.

"A vote against the transaction may expose shareholders to some short-term downside market risk ... Voting for this transaction on the current terms, by contrast, permanently locks in a valuation disparity which materially exceeds any short-term downside risk,"

it added.

"While management puts forward a list of revenue and synergy targets, the targets appear to be hugely optimistic and how such targets could be achieved remain unclear," it said.

Elliott cheered the ISS' decision through a brief Korean-language statement, adding the report "clearly proved our concerns on the merger."

"ISS and Glass Lewis are all symbolic to all institutional investors," a market watcher said, also referring to another proxy advisory firm that gave a similar opinion on the merger earlier.

"Their reports are significant for the two's merger."

Samsung C&T immediately responded to the ISS' claim.

"Samsung C&T has been seeking the merger to maximize the value of shares and a continued growth through synergy and new growth engine," the company said, adding the plan was approved by detailed studies with other bodies.

"All merger procedures are legitimate as shown by the court's ruling on July 1," it added.

The National Pension Service (NPS), the state-run pension fund, said in a regulatory filing Friday that it has increased its stake in C&T to 11.61 percent as of end-June, from 9.92 percent held on June 3.

However, its vote will only represent 11.11 percent since the stake purchases made after the builder closed its shareholder list for the July meeting won't be counted.

This makes its vote crucial in the upcoming C&T shareholders meeting as it will be the swing vote in the merger bid.

Samsung C&T needs at least 47 percent of the vote to push through the deal. It has likely secured some 20 percent so far, while foreigners hold a combined 33.61 percent stake in the builder. Local institutions, including the NPS, are estimated to own about 21.5 percent. (Yonhap)