hankyoreh

Samsung Electronics Vice Chairman Lee Jae-yong heads to the Seoul Central District Court for questioning on June 8. (Yonhap News)

The Samsung Group aggressively lobbied South Korea’s press to manipulate public opinion leading up to the extraordinary general meeting of stockholders held in July 2015 to vote on the proposed merger of Cheil Industries and Samsung C&T, an investigation by South Korea’s prosecutors has found. Over the course of four days, Samsung took out 3.6 billion won (US$3.03 million) in advertisements at newspapers in the country. According to the prosecutors, Samsung branded the managers of a foreign-owned hedge fund opposing the merger as “dine-and dash capitalists” and asked media outlets to run stories in support of that narrative.

Prosecutors also learned that Samsung Electronics Chairman Lee Kun-hee was briefed on the “Project-G” (“G” standing for “governance”) document, which contained a plan to allow Lee Jae-yong, Lee’s son and vice chairman of Samsung Electronics, to inherit control over the group. These findings appeared in the indictment that prosecutors submitted to the court when they filed charges against Lee Jae-yong and other Samsung executives on Sept. 1.

According to the indictment, which the Hankyoreh reviewed on Sept. 10, Lee and executives with Samsung’s now-defunct Future Strategy Office (FSO) met with US-based multinational investment bank Goldman Sachs to devise countermeasures shortly after US hedge fund Elliott Management, a major shareholder in Samsung C&T, launched a campaign against the planned merger on June 4, 2015. The prosecutors believe that, in this meeting, Lee and his allies planned a concerted campaign to disseminate deceptive arguments and justifications for the merger to domestic and foreign investors, voting advisory companies such as the Institutional Shareholder Service (ISS), and the press. Prosecutors furthermore concluded that this meeting was when the decision was made to frame Samsung in the press as being unfairly attacked by the “speculators” and “dine-and-dash capitalists” at Elliott Management.

Prosecutors wrote in their indictment that Lee and a number of FSO executives (including Choi Gee-sung, former head of the office; Chang Choong-ki, deputy head; and Kim Jong-joong, another senior executive) developed a media action plan in an attempt to move public opinion in favor of the merger. Lee’s plan, the prosecutors said, was to present Samsung as the good guys, fighting against the villainous speculators at Elliott, who were concerned with nothing but maximizing their profits. The plan also sought to produce a wave of articles about the supposed synergistic benefit of the merger, all with the goal of concealing or at least obscuring the problematic aspects of the merger from both investors and the public at large.

According to this plan, Chang Choong-ki instructed the FSO and the PR team at Samsung C&T in July 2015 to regularly contact press executives and reporters in their circles to ask for articles favorable to the merger. In particular, Samsung spent around 3.6 billion won on ads about the delegation of voting rights on July 13-16, the four days before the general stockholders’ meeting on July 17 when the merger vote was scheduled.

Prosecutors found 11 articles and columns that fit this narrative, including “Speculative capital must be stopped from disrupting corporate management” (Dong-a Ilbo, July 13), “Korean companies fall prey to hedge funds: ‘one attack can bring management to a standstill’” (Chosun Ilbo, July 9), National pension service should ride to rescue of Samsung C&T merger” (Joongang Ilbo, July 9), “National pension service’s support of Samsung C&T merger is obvious choice” (Maeil Business Newspaper, July 13).

The prosecutors believe that Project-G, the succession plan that was drafted on the orders of Choi Gee-sung in October 2012, was first presented to both Lee Jae-yong and his father Lee Kun-hee from January to February 2013 and then carried out under the leadership of the younger Lee. In the indictment, prosecutors wrote that the conditions for a joint venture between Samsung Bioepis and American biopharmaceutical firm Biogen — a deal kept under wraps until just before the merger — were decided personally by Lee Jae-yong during negotiations with Biogen at the time of Bioepis’ establishment. The prosecutors also wrote that Lee had been briefed by Kim Jong-joong on the progress of fraudulent accounting after the merger and gave his personal approval to those efforts.

Samsung said that the charges against Lee are “entirely false” and that the company will “fully refute them in court.”

By Kim Jeong-pil, and Lim Jae-woo, staff reporters

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