SEJONG/SEOUL, Dec. 28 (Korea Bizwire) – South Korea’s antitrust watchdog Sunday said the intra-group merger and acquisition (M&A) deal by Samsung affiliates strengthened banned cross-shareholding ties within the conglomerate that need to be resolved.
According to the Fair Trade Commission (FTC), the merger between Cheil Industries Inc. and Samsung C&T Corp. on Sept. 1 reduced the overall number of cross-investment arrangements between affiliates of South Korea’s No. 1 business group from 10 to seven. It, however, said some cross-investment ties have become more pronounced.
The corporate regulator said in the case of Samsung SDI Co., which held 7.2 percent of 4 million shares in the old Samsung C&T and 3.7 percent or 5 million shares in the old Cheil, the company must now sell 5 million or 2.6 percent of the stake it now holds in the unified entity by late February.
The unified company called the new Samsung C&T effectively the holding company for the entire business group, with the group’s de facto heir, Lee Jae-yong, holding a 16.5 percent stake. Counting stakes held by the family members of Lee, the size of “favorable stakes” stands at over 30 percent, so selling 2.6 percent will not affect his control.
Related to the FTC’s stance, Samsung has said it will take steps to follow the ruling, but it is asking for more time.
Company insiders have said that the FTC’s ruling came too late for it to find a buyer on such short notice.
“Disposing of so many stakes at once will cause a shock in the market, especially since Samsung C&T shares fell from close to 180,000 won (US$153.7) per share right after the M&A, to 145,000 on Thursday,” an insider, who declined to be identified, said.
Market watchers said that the most feasible way to dispose of so many stocks is through a so-called block deal that can take time to arrange.
It can be sold to the No. 1 shareholder, which is Lee, or those that are close to Samsung, like KCC, that won’t pose a threat to ownership and control.
Besides making a ruling on the Samsung deal, the FTC announced guidelines for M&A deals that can prevent confusion and remove unnecessary uncertainties in the future.
It said the detailed guidelines are aimed at resolving vagueness in rules governing exceptions and waivers related to the mergers of big companies. Such snags can hold up critical corporate restructuring efforts and exert a negative impact on the economy.
Under South Korea’s fair trade law, affiliates of large business groups with assets of 5 trillion won or more are restricted from making equity investments or offering loan guarantees to one another.
These rules are in place to prevent large companies from expanding their areas of business indiscriminately and to make certain they do not expose themselves to risks by overreaching their capabilities.
However, it gives a grace period for companies that have merged to resolve the cross-shareholding situation coming from the merger, and in some cases gives outright waivers. Such rules have been applied to Samsung and other conglomerates.
The corporate regulator said guidelines that will be sent to companies provide examples of what type of mergers are eligible for a grace period and what tie-ups can get a waiver.
Representatives of the Samsung Group said it will comply with the FTC decision and make efforts to resolve its complicated inter-affiliate stakeholding scheme, but will also ask the antitrust watchdog to extend the two-month grace period.
“We’ve decided to accept it as part of our efforts to join the FTC’s move to strike the cross-shareholding structure,” said an official from the company, asking for anonymity. “We have to sell some 5 million Samsung C&T shares owned by Samsung SDI by the end of February. We’ll need plans to minimize any impact on the market. We are considering asking the FTC to postpone the implementation of the policy.”