Thwarted Merger between Samsung Companies a Prelude to Shareholder Activism?

As the merger ambitions were frustrated, the dream of Samsung Group to create a super-large-sized plant builder was run aground and its bid for group-wide restructuring was also discouraged. (image: Samsung Heavy Industries)

SEOUL, Nov. 20 (Korea Bizwire) — A merger between Samsung Heavy Industries and Samsung Engineering has been shelved due to opposition by institutional investors including the National Pension Service. As the big investors exercised their stock buyback rights, the companies saw their merger cost soar and decided to call it off.

Some analysts suggested that this may be a prelude to an era of shareholder activism in which shareholders that have thus far been on the sidelines exercise more power in management issues.

According to financial investment sources on November 19, the most important reason for the foundering of the scheduled union had to do with stock buyback option, as stakeholders who were unhappy about the merger exercised their buyback rights far above the prearranged level set by the merger contract.

The stock buyback volume was 706.3 billion won far surpassing the upper limit of 410 billion won. The National Pension Service also exercised its rights as it is a sizable shareholder for both Samsung companies. Fearing for an abrupt decline in the share prices following the buyback exercise of the national pension corporation, other shareholders followed suit even though they did not object to the tie-up.

As the big investors exercised their stock buyback rights, the companies saw their merger cost soar and decided to call it off. (image: Kobiz Media / Korea Bizwire)

As the merger ambitions were frustrated, the dream of Samsung Group to create a super-large-sized plant builder was run aground and its bid for group-wide restructuring was also discouraged.

A National Pension Service official said, “We had to exercise our buyback option if the stock price difference gets too wide. But we didn’t exercise the option for all shareholdings.” Earlier on October 27 when a shareholders meeting was held, the pension fund made clear that it opposed to the proposed merger and cast an abstention vote to the proposal.

A Samsung Heavy Industries official said, “The merger bid was frustrated as the current stock price fell much below the preset stock buyback option exercise price due to the overall downturn in the industry and the unfavorable stock market conditions.”

“Nonetheless, our collaborative effort to strengthen market power in the global offshore plant building area will continue and whether we will try to join hands again will be determined ultimately by market conditions and attitude of shareholders,” he added.

Some analysts commented that the unfulfilled merger attempt hurt Samsung’s pride in no small measure. The leadership of Lee Jae-yong, Samsung Group’s de facto chairman after the hospitalization of his father, was also questioned.

In a way, the latest mini-revolt can be interpreted as a warning by the market to the nation’s largest business group that you can’t do everything the way you want it. For Lee Jr., the moral of the travail may be that it won’t be as easy as he thought it would be to lead the behemoth.

By John Choi (johnchoi@koreabizwire.com)