Samsung Group planned to manipulate market prices ahead of Cheil/Samsung C&T merger

Posted on : 2019-11-28 18:18 KST Modified on : 2019-11-28 18:18 KST
Company document reveals strategy to win support from NPS and major shareholders for merger
Samsung Electronics Chairman Lee Jae-yong after his corruption trial at Seoul High Court on Nov. 25. (Park Jong-shik, staff photographer)
Samsung Electronics Chairman Lee Jae-yong after his corruption trial at Seoul High Court on Nov. 25. (Park Jong-shik, staff photographer)

The Future Strategy Office (FSO), which previously served as the Samsung Group’s control tower, drew up plans for artificial manipulation of market prices ahead of the Cheil Industries/Samsung C&T merger in April 2015 in order to win support from the National Pension Service (NPS) and other shareholders, an internal document shows. The document appears to bear out allegations of group-level planning and stock price manipulation to pave the way for a merger benefiting the succession of Samsung Electronics Vice Chairman Lee Jae-yong to management authority.

An April 2015 document titled “‘Company M’ Merger (draft)” acquired by the Hankyoreh on Nov. 27 totaled 14 pages in length, including three pages of annex materials. The document included procedures and a schedule for the Cheil Industries/Samsung C&T merger, as well as a concrete strategy for the merger. While the document’s author was not listed, the use of an identical format and terminology to past FSO documents suggests it was drafted by the FSO. Indeed, the pursuit of the Cheil Industries/Samsung C&T merger was made public a month after the document’s drafting at a board meeting on May 26, 2015; the decision to proceed was finalized at a general shareholders’ meeting the following July 17. At the time, a “0.35-to-1” merger ratio between Samsung C&T and Cheil Industries led some to characterize the plan as beneficial to Lee as Cheil Industries’ majority shareholder, and detrimental to NPS and other Samsung C&T shareholders.

In the merger document, Samsung anticipated objections to the merger ratio from NPS and other Samsung C&T shareholders and called for “stock price support” following the merger vote in order to quiet them.

“There is a possibility that [NPS] will object to the merger ratio on the grounds that Cheil Industries values are ‘assessed relatively high compared to Samsung C&T,” Samsung noted in the document.

“The current share values are 0.7 times C&T’s total assets and 3.4 times Cheil Industries’,” it continued -- indicating that Samsung itself was aware that the Samsung C&T’s stock price was undervalued in comparison with total assets, while Cheil Industries’ was overvalued.

Noting that “negative influences on stock prices are reflected in first quarter performance or pre-reflected in stock prices based on market opening before the merger board meeting is announced,” Samsung called for “supporting stock prices by concentrating positively influencing factors in July/ August after the merger board meeting is held.” As specific examples of positive influences that would be announced, Samsung named “the possibility of a Samsung Bioepis listing on NASDAQ and the announcement of construction orders [for Samsung C&T].” This indicates that the group was planning to effectively manipulate stock prices by selectively disclosing favorable and unfavorable information around the time of the merger decision.

Indeed, just before the merger vote on May 26, Samsung C&T had supplied just 300 units of apartments amid a housing boom in the first half of the year; after the merger decision, it announced plans that July to supply 10,994 apartment units in Seoul. On July 1, Cheil Industries announced attempts to pursue a NASDAQ listing for Samsung Bioepis, a subsidiary of key affiliate Samsung BioLogics.

Legal analysts said the acts listed in the document are very likely to constitute violations of the ban on market (stock) price manipulation according to the Capital Markets Act. Samsung said it was “unaware of the document” and had “no particular comment on it.”

By Lim Jae-woo, staff reporter

Please direct comments or questions to [english@hani.co.kr]

button that move to original korean article (클릭시 원문으로 이동하는 버튼)

Related stories

Most viewed articles