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Samsung's founding family is testing its shareholders' resolve. Investors in Samsung C&T have plenty of good reasons to resist an $9.2 billion takeover by the South Korean group's de facto holding company, Cheil Industries. Opposition would warn the Lee family against further mistreating independent shareholders. But it might also delay a potentially lucrative restructuring of the country's largest chaebol.
There's no obvious benefit to combining a fashion to theme-park operator with a construction and trading company. C&T shareholders are being offered Cheil's overpriced shares with almost no premium at a time when the exchange ratio between the two shares is at its lowest level since Cheil listed in December. However, the deal helps the Lee family tighten its grip on Samsung Electronics. The clan directly own just 4.7 per cent of the $193 billion smartphone maker, while C&T has a further 4.1 per cent.
The acquisition of C&T is expected to be one step in a much wider simplification of the 70-odd companies in the Samsung group. That could help the Lee family fund a large inheritance tax bill and potentially unlock Samsung Electronics' huge cash pile. As the deal requires the approval of two-thirds of voting shareholders, South Korea's National Pension Service, which owns 10 per cent of C&T, has the power to lead a rebellion.
Such a move would be unusual in South Korea. Yet if investors allow this deal to pass, it could lead to further transactions on poor terms. One of the family's next steps might be to merge Samsung Electronics with $22 billion IT services provider Samsung SDS. That would give the enlarged C&T an even bigger stake in the smartphone maker. The risk for independent shareholders is that Samsung Electronics uses its relatively lowly-valued shares to buy SDS, which trades on 46 times next year's earnings.
Investors are becoming more active in standing up to South Korea's powerful business families but they are also keen to see reform. If the C&T deal is blocked, it's unclear how quickly Cheil would return with a better offer. Shares in both companies have risen almost 16 percent since the deal was announced. That suggests South Korean investors may accept short-term pain for the hope of longer-term gain.
(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)
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