SEOUL, Jun. 24 (Korea Bizwire) — South Korea’s national pension fund said Wednesday it will vote against the proposed merger between two units of SK Group, but the country’s No. 3 conglomerate vowed to push ahead with the deal.
SK Group has said earlier its holding firm SK Holdings Ltd. will merge with the group’s IT outsourcer, SK C&C Co. as part of its broader efforts to streamline its complex ownership structure.
An outside panel of the National Pension Service (NPS), which holds a 7.2 percent stake in SK Holdings, said it basically agrees with the merger’s purpose, but the share swap ratio and the timing of stock cancellation could hurt the shareholder value.
The share swap ratio between SK Holdings and SK C&C was set at 0.75: 1.’
Although the NPS may not thwart the deal due to overwhelming stakes held by the owner family, the defiant move by the nation’s biggest institutional investor drew keen attention as the sentiment could spill over into other merger plans on the line.
Samsung Group, the country’s largest conglomerate, is struggling to win more support from shareholders for a proposed merger between two of its units, which is being challenged by U.S. hedge fund Elliot Management. The activist hedge fund claims that the proposed merger of Samsung C&T Corp. and Cheil Industries Inc. undermines Samsung C&T’s shareholder value and the proposed merger ratio goes against shareholders as well.
The Cheil Industries-Samsung C&T merger is widely believed to be a key step for the third generation power shift at the nation’s top conglomerate.
Following the NPS’ announcement, SK Group said it will go ahead with the merger as planned on Aug. 1.
“We accept the National Pension Service … but we will push for the merger as planned,” SK said.
If the deal receives approval from shareholders on Friday, a new entity will be launched under the name of SK Holdings on Aug. 1. The combined assets of the new entity are estimated at 13.2 trillion won, according to the group.
SK Corp. chairman Chey Tae-won currently holds a 32.9 percent stake in SK C&C, which in turn owns 31.8 percent of SK Holdings, allowing him to virtually control the group. Chey’s stake in SK Holdings currently stands at only 0.02 percent.
The deal apparently comes as SK Group is moving to reorganize its business structure so that SK C&C stands at the top of group management through its stake in SK Holdings.
After the merger is successfully completed, Chey and related parties will hold a combined 30.6 percent in the new entity.
The need for group-wide reorganization also emerged as Chey has been serving a four-year jail term since January 2013, and the group’s mainstay units — SK Telecom Co. and SK Innovation Co. — posted lackluster earnings for 2014.
The merger also comes at a time when the government has strengthened regulations on inter-affiliate trading, which has been accused of stifling the growth of the nation’s small and medium enterprises.
SK was accused of excessive internal trades among its subsidiaries, with the amount reaching 47 trillion won, last year.
The NPS’ latest move comes as the fund controlled by the health ministry has come under growing pressure to raise its voice at shareholders’ meetings instead of acting as a rubber stamp, as it is accused of doing.
Most recently, in November the NPS thwarted the proposed merger between Samsung Engineering Co. and Samsung Heavy Industries Co., as it requested the companies to buy back its shares in opposition to the plan.
On Wednesday, shares of SK and SK C&C fell 0.5 percent and 2 percent on the Seoul bourse, respectively. The benchmark index KOSPI rose 0.2 percent.