Paul Elliott Singer could not have picked a bigger fight in South Korea. The American hedge-fund manager said he would oppose a proposed merger within Samsung Group, thereby laying down a challenge to the country’s most powerful company and its richest family.
Predictably, all hell has broken loose. The local press has attacked Singer as a meddling pariah, casting doubt on his motives and advocating more protection for domestic companies. The Korea Economic Daily went as far as calling on regulators to investigate Singer for insider trading or other illegal activities, despite the absence of any evidence.
Yet the support for Samsung is hardly unanimous. Hundreds of minority investors are banding together to back Singer and, perhaps more importantly, the government has stayed neutral. The billionaire is doing more than raising questions about one deal: He’s set off a debate about the privileged position the industrial titans known as chaebol have held in Korea -- and whether they should keep getting special treatment.
“Samsung and South Korea are at a crossroad,” said Kim Sang Jo, executive director at Solidarity for Economic Reform and professor at Hansung University. “If Samsung sticks to its old ways or if South Korea stirs up a nationalistic movement against Elliott, foreign investors’ interest in South Korea will sour.”
The chaebol have held a special place in the country ever since they helped rebuild the economy after the Korean War. They were given explicit government support and protectionist policies as the country modernized and became the fourth-largest economy in Asia. Samsung is as revered in South Korea as Apple Inc. and the founding Lee family is effectively royalty.
Generational Shift
The merger at the heart of the fight with Elliott is part of a once-in-a-generation leadership change atSamsung. Lee Jae Yong, grandson of the group’s founder, is positioning himself to take control of the conglomerate, a collection of 67 companies generating about $270 billion in annual revenue. In the proposed deal, the de facto holding company Cheil Industries Inc. would acquire Samsung C&T Corp., solidifying the younger Lee’s control over the crown jewel, Samsung Electronics Co.
Singer is an unwelcome guest at the coronation. He took a stake in Samsung C&T and has argued that the $9 billion all- stock takeover offer from Cheil “significantly undervalues” the target’s worth. His Elliott Associates LP filed legal papers to block the deal just a week after emerging as SamsungC&T’s third-largest shareholder.
Bad Timing
Singer’s problem with the deal is that he’s done the math and for him it doesn’t add up. Cheil’s all-stock offer is valued at about 8 percent below C&T’s latest closing price, according to data compiled by Bloomberg.