Jungah Lee Seoul
INSTITUTIONAL Shareholder Services (ISS) told investors to reject Samsung Group’s proposed merger of two units, setting back the South Korean conglomerate’s efforts to push through a deal that would solidify the founding family’s control over their business empire.
Investors in Samsung C&T should decline group affiliate Cheil Industries’s all-stock buyout offer when the deal comes to a shareholder vote on July 17, the proxy advisory firm said in a report.
Management’s revenue targets were “hugely optimistic and how such targets could be achieved remain unclear”, ISS said in its report. Samsung’s argument in favour of the merger “remains vague and unconvincing”.
ISS joins Glass Lewis in opposing the merger and siding with billionaire activist investor Paul Elliott Singer’s campaign to block the deal on grounds that minority shareholders will be hurt.
It is a blow for Samsung’s ruling Lee family, which is counting on the merger to tighten the corporate dynasty’s grip over South Korea’s biggest conglomerate ahead of a generational transition in leadership.
Samsung C&T said it “strongly” disagreed with the recommendation from ISS.
Best opportunities
“Samsung C&T’s board and independent advisors concluded that the merger provides the best opportunities to drive long-term growth and value for our shareholders,” the Seoul-based company said.
The deal would put Samsung C&T shareholders at a disadvantage, as potential synergies did not make up for the undervaluation in the deal, Maryland-based ISS said.
“Much of the potential revenue synergies claimed by management seem to rely heavily on the growth profile of Cheil Industries,” ISS said.
“Shareholders wishing to have exposure to Cheil Industries’ growth prospects could do so by simply investing directly in Cheil Industries.”
ISS and Glass Lewis are two of the most influential proxy advisory firms providing corporate governance advice to fund managers.
ISS covers about 39 000 companies in 115 countries, while Glass Lewis’s clients collectively manage more than $20 trillion (R246 trillion) in assets. More than 40 percent of C&T’s shares are held by institutional investors.
“We’re obviously pleased with the ISS recommendations, which clearly validate our concerns about the proposed merger,” Elliott Associates said in a statement
. – Bloomberg