`No legal violation committed in Samsung C&T – Cheil Industries merger’

Daishin Economic Research Institute suggested on Friday that it supports the merger between Cheil Industries and Samsung C&T, which is under attack by the U.S. hedge fund Elliott Management. The institute affiliated with Daishin Securities provides advisory to institutional investors on exercising of voting right by analyzing agendas for companies.

The institute said on the day, “We express our decision to support the deal because there was no violation of laws and regulations in the process of merger, and there is no problem in the timing of merger and valuation, which are the biggest issues of controversy.” It then added, “On the contrary, after the merger the process to address Samsung Group’s cross-subsidiary shareholdings will be accelerated and its governance structure will be improved, which will have a positive impact on shareholders’ interest.”

On some people’s criticism of the fact that the decision on the merger was made when Samsung C&T’s share price was low is problematic, the economic think tank said, “The outlook of Samsung C&T’s profitability indicators, including earnings per share (EPS) and operating profit, have continued to deteriorate,” adding, “As a result, chances are high that its share price will decline further, and therefore the argument that Samsung C&T’s share price was at the lowest point lacks justification.”

The institute also flatly denied the claim by Elliott and others that Samsung C&T’s value was underestimated. It said, “The price-to-book ratio which indicates share price level relative to asset value was 0.7 times for Samsung C&T, and hence it could be judged to be relatively undervalued compared with Cheil Industries (3.5 times),” adding, “However, because the return on equity ratio indicating a company’s capacity to generate income was also 2.2 percent for Samsung C&T, and was far lower than that (9.9 percent) of Cheil Industries, it is not accurate to judge that Samsung C&T’s value is significantly underestimated.”

However, since Sustinvest, another advisory agency on exercising of voting right, expressed its objection to the merger between Cheil Industries and Samsung C&T earlier, it is difficult to predict what stance domestic institutional investors will take.