Samsung fended off the challenge of a big activist investor as the founding family tightened its grip over the sprawling South Korean conglomerate. But the public fight, a rare bout of activism in Asia, also exposed broader concerns about shareholder rights and succession planning in a country dominated by family-controlled conglomerates known as chaebols.
The battle centred on the $8-billion merger of two Samsung affiliates, Samsung C&T and Cheil Industries. The restructuring would allow Samsung to transfer more power to Lee Jae-yong, the son of the conglomerate's chairman, Lee Kun-hee, who has been incapacitated since a heart attack in May 2014.
The New York hedge fund Elliott Associates wanted to scuttle the deal, saying it grossly undervalued Samsung C&T and represented an unlawful attempt by the Lee family to consolidate its hold.
For weeks, both sides tried to drum up support through fierce campaigns that featured lawsuits and front-page newspaper ads. Samsung depicted Elliott, which owns 7.12 per cent of Samsung C&T, as a vulture capitalist, out to disrupt an orderly generational change and make a quick profit. Elliott, which is run by Paul E Singer, filed and lost a pair of lawsuits in South Korea seeking to block the shareholder meeting.
In the end, it was close. The merger was backed by 69.53 per cent of the shareholders who voted on Friday, narrowly above the amount needed. Investor activism like the Samsung fight is relatively uncommon in Asia. Publicly traded companies often remain under the control of close-knit family groups or state-backed shareholders, and legal protections for minority investors can be patchy. In many cases, activism in Asia plays out over a longer horizon, with players favouring persistent behind-the scenes lobbying over public campaigns.
The hedge fund Oasis Management, which built a small stake in the Japanese video game maker Nintendo, spent more than two years arguing that the company needed to move beyond its struggling console business. In March, Nintendo announced a new partnership to push into mobile games, and in May, it announced plans to bring its video game characters to Universal Parks and Resorts. The company's shares have risen about two-thirds since the start of this year.
The Wall Street activist investor Daniel S Loeb of Third Point took on Sony two years ago, pressing for a board seat. He also pushed the company to spin off part of its entertainment arm, which includes a Hollywood film studio and a music label. Loeb was largely rebuffed and eventually sold his Sony stake.
He later invested in Fanuc, the Japanese robot maker, where he was better received. After a recent meeting with the company's management, Fanuc agreed to double its dividend. Elliott has previously gone up against powerful Asian tycoons.
Last year, it built up a 2.5 per cent stake in the Bank of East Asia, one of Hong Kong's biggest local banks, which is controlled by the family of David Li. But the hedge fund's stake was diluted after the bank sold new shares to the Sumitomo Mitsui Financial Group of Japan.
Elliott sought to challenge the decision, which some analysts described as a defensive move by the Li family, asking a Hong Kong court to order Bank of East Asia to disclose the reasons for the share placement. But the hedge fund has so far stopped short of suing the bank or its directors. The face-off over Samsung loomed large in South Korea.
Samsung's 70 subsidiaries, engaged in businesses as varied as shipbuilding, home appliances, apartment buildings and mobile phones, generate revenue equalling a quarter of South Korea's gross domestic product. The group's influence is so pervasive that the country is often referred to as 'Republic of Samsung'.
Going into the Samsung vote, Elliott did drum up support from big international investors like the Canada Pension Plan Investment Board and outside advisory firms like Institutional Shareholder Services and Korea Corporate Governance Service. Thousands of small local shareholders also rallied online to support Elliott's activist strategy as a catalyst for better corporate governance at the chaebol.
To win over investors, Samsung dispatched executives on overseas trips and rank-and-file employees on door-to-door visits at home. Samsung won the backing of domestic institutional investors, including South Korea's National Pension Service, which was the single-largest shareholder at Samsung C&T, with an 11.9 per cent stake. "Elliott is disappointed that the takeover appears to have been approved against the wishes of so many independent shareholders and reserves all options at its disposal," the hedge fund said in a statement.
Although it lost the vote, Elliott's activism appeared to have some effect. Cheil and Samsung C&T have promised to bolster corporate governance by increasing dividends and creating a shareholder rights committee.
"We will listen to those who opposed the deal and pledge to better engage with our shareholders and be more open to their input and feedback," Cheil and Samsung C&T said in a joint statement.
© 2015 The New York Times News Service
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