Pension funds, proxy-voting advisory firms and a big hedge fund shareholder have lined up against the proposed merger of South Korean companies Samsung C&T Corp. and Cheil Industries Inc.
The $193.1 billion California State Teachers’ Retirement System, West Sacramento; the $181.4 billion Florida State Board of Administration, Tallahassee; and the C$238.8 billion ($193.7 billion) Canada Pension Plan Investment Board, Toronto, all plan to vote against the proposed merger, according to their proxy-voting disclosures. The three pension funds did not provide reasons for their votes.
Both Glass Lewis and Institutional Shareholder Services recommend their institutional investors clients vote against the proposed merger.
Elliott Associates, a hedge fund manager with $26 billion in assets under management and the third largest holder of Samsung C&T stock with 7.1% of the shares, is contesting the proposed merger, including through litigation, according to a news release from the investment firm.
Both Glass Lewis and ISS in their separate reports view the proposal as undervaluing Samsung C&T.
A “combination of public market undervaluation of Samsung C&T shares, and a public market overvaluation of Cheil Industries shares, makes the deal significantly disadvantageous to Samsung C&T shareholders,” the ISS report notes
Some 60% of Samsung C&T’s market valuation comes from the company’s minority stakes in listed companies, including holding a 4.1% stake in the technology company Samsung Electronics Co. Ltd., which is not affected by the proposed merger, the ISS report states.
The Samsung C&T market value, net of treasury shares, the day before the May 26 announcement of the proposed merger, was 8.142 trillion South Korean won ($7.4 billion), a value barely exceeding the 8.068 trillion won of Samsung Electronics’ total market value, the Glass Lewis report notes..
In opposing the merger, the Glass Lewis report notes Samsung C&T “is expected to account for approximately 74% of the combined firm’s net asset value, with Cheil contributing the remaining 26%.” But if the merger proposal should succeed, current Samsung C&T shareholders “would hold only 27.2% of the combined firm,” while Cheil shareholders would hold the remainder.
To bolster support for the proposal, Samsung C&T detailed shareholder enhancements, including adding to its governance committee an external expert appointed upon recommendations from shareholders as well as initiating “regular shareholder discussions … to strengthen communications with shareholders,” according to a company statement issued Friday.
The Samsung C&T meeting is July 17.