ISS Joins Opposition to $8B Samsung Merger

Proxy advisor says Samsung's argument in favor of combining two of its units “remains vague and unconvincing."
Katie Kuehner-HebertJuly 3, 2015

Proxy advisor Institutional Shareholder Services is recommending that investors reject Samsung Group’s proposed $8 billion merger of two units when the deal comes to a shareholder vote on July 17, Bloomberg reports.

ISS joins Glass Lewis, another advisory firm, in opposing the merger and siding with activist investor Paul Elliott Singer’s campaign to block the deal on grounds that it would hurt minority shareholders.

Under the terms of the all-stock deal, Samsung Group’s Cheil Industries would buy out Samsung C&T. The deal is being pushed by Samsung’s Lee family, which has a 20% stake in C&T and is trying to consolidate control over its conglomerate before 47-year-old Lee Jae Yong, the founder’s grandson, takes over.

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More than 40% of C&T’s shares are held by institutional investors, according to data compiled by Bloomberg.

In its report, ISS said Samsung’s argument in favor of the merger “remains vague and unconvincing” as C&T management’s revenue targets are “hugely optimistic and how such targets could be achieved remains unclear.”

“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.”

In response, Samsung C&T told Bloomberg in an emailed statement that its board and independent advisors concluded the merger “provides the best opportunities to drive long-term growth and value for our shareholders.”

Singer’s hedge fund said in a statement that the firm is “obviously pleased with the ISS recommendations, which clearly validate our concerns about the proposed merger.”

Singer has argued that the merger would pass 7.8 trillion won ($7 billion) of C&T book value to Cheil without compensation.