In approving merger, Samsung appealed to “patriotic marketing”

Posted on : 2015-07-21 17:47 KST Modified on : 2019-10-19 20:29 KST
Analysts say depicting Elliot and their objections as predatory, Samsung won over more small investors
 founder of New York-based Elliot Associates as a vulture. The company removed the cartoon one day before shareholders voted on the merger with Cheil Industries.
founder of New York-based Elliot Associates as a vulture. The company removed the cartoon one day before shareholders voted on the merger with Cheil Industries.

“Patriotic marketing” was a decisive factor in Samsung’s ability to narrowly vote through a merger with Cheil Industries at a Samsung C&T general shareholders’ meeting, over objections from the hedge fund Elliott Management, securities analysts said.

After Elliott opposed the merger, Samsung’s strategy involved going after it as “predatory capital.” In promotional pieces on the C&T merger for its official website, it portrayed Elliott as a literal vulture, a nefarious foreign investor seeking only profit. When persuading individual investors to support the merger, it insisted that they not aid Elliott in its “eat-and-run strategy.” Samsung also staged a large-scale advertising campaign ahead of the shareholders’ meeting.

“It had already been decided early on by both of them [Samsung and Elliott] that they needed to get the small shareholders,” said a research official for one securities company. “Elliott’s mistake was not to try to shut down the ‘patriotic marketing’ campaign [by Samsung].”

Now that the appeal to patriotism appears to have worked with investors, many analysts see Elliott’s insistence that Samsung Electronics shares be allocated as dividends of securities of which Samsung holds shares, as having backfired. Some also say the hedge fund showed its own incompetence by assuming too readily that foreign investors with shares in both Samsung C&T and Cheil Industries would throw their weight in with it.

Elliott‘s misjudgment may have helped the Samsung merger succeed, but Samsung suffered its own damage in the form of eroded trust.

“We asked the company about merger plans and were told they didn’t have any,” said an Elliott source. “A month and a half later, they announced the merger.”

Just after Elliott went on the offensive, predictions emerged that Samsung would deliver 5.76% of C&T treasury stock into “friendly” hands. Samsung initially denied this, but soon backtracked and made the sale to KCC. It also stressed the investment risk for Cheil Industries affiliate Samsung Biologics during a Nov. 2014 investor relations meetings. But when the C&T merger announcement was greeted with skepticism over the synergy effect between the two companies, it presented rosier predictions for bio-industry.

“The most surprising thing for me was the way the Samsung C&T managers talked about how there was no future in the company,” said a researcher at one securities company. Indeed, some analysts are questioning the logic of managers downplaying their own company’s value to counter criticisms that the C&T and Cheil Industries merger ratio is unfavorable to C&T.

“Samsung C&T also went after the small holders with 50 shares or so,” the researcher added. “One friend of mine said they sent over someone 20 years younger who had attended the same university department.”

For all the energy Samsung put into its campaign, the approval only narrowly captured the required two-thirds vote.

“The approval rate for Elliott’s proposed articles of association amendments was high, somewhere around 45%,” said a former senior executive at one large corporation, speaking on condition of anonymity.

“It appears that people took Samsung‘s side on the merger itself, but around half of them also voiced unhappiness with the way things are currently run.”

A July 20 opinion piece in the Wall Street Journal noted that Samsung affiliates “account for a huge chunk of South Korean gross domestic product, and Samsung Electronics is the world’s second largest tech company by sales after Apple.”

“But that high profile is all the more reason for Samsung to abide by modern rules of corporate transparency and respect for minority shareholders,” it cautioned.

The civic group Solidarity for Economic Reform issued a statement arguing that Samsung “needs to heed the warning and lessons of public opinion and reform its dogmatic, insular ‘Samsung approach’ to management.”

An executive with Samsung’s Future Strategy Office said on July 20 that the company is “considering ideas for restoring the trust of the market and community.” Many in and around the group have suggested beefing up social contributions and direct communication with the community. Also being discussed are ideas for bringing the organizational culture at its affiliates more in line with a global standard and expanding the governance committee framework - a system to be introduced at the post-merger C&T to protect shareholder interests - to other affiliates as well.

“Nothing has been decided yet,” said a Future Strategy Office source when asked about press reports that one plan under consideration would involve joint management by the third-generation members of the Lee family rather than a spinoff of the post-merger C&T, which many are concerned would hurt share values.

“That’s not the kind of thing that gets decided in a day or two,” the source added. “But that doesn’t mean we can keep dragging things out forever.”

Hosting staff work on counting votes on the Samsung C&T and Cheil Industries merger at the aT Center in Seoul’s Yangjae neighborhood
Hosting staff work on counting votes on the Samsung C&T and Cheil Industries merger at the aT Center in Seoul’s Yangjae neighborhood

 

By Kim Hyo-jin and Lee Jeong-hoon, staff reporters and Kwak Jung-soo, business correspondent

 

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