Court rules in favor of Samsung, Elliott loses again

Samsung was handed a win over Elliott at the second court battle on Tuesday, causing the U.S. activist fund`s claim that the merger is unlawful to lose more ground.

Court ruled on whether Samsung C&T`s sale of 8.89 million treasury shares (5.76 percent stake) to KCC on June 11 unlawfully infringed on rights of existing shareholders and whether the purpose of the sale was fair. Elliott had requested the court to restrict KCC`s right to vote claiming the stake sale to Samsung`s friendly shareholder diluted the voting rights of existing shareholders, and the sale was intended only for the largest shareholder to maintain management control. While treasury stocks cannot vote for themselves, they can obtain voting rights when sold to another party. This was about the only thing Samsung could do to defend its managerial rights to fend off Elliott.

The court said, "When a company is holding treasury stocks, other shareholders can enjoy increased voting rights, which is higher than the actual shares, but this is only a reflective benefit," hinting that recovering voting rights through treasury stock sale can`t be considered legal. It meant that even though the voting rights of existing shareholders are reduced relatively, it doesn`t mean unlawful rights infringement.

Elliott`s claim that the stock sale is intended just to maintain control of management and goes against the interests of shareholders was also rejected. The judge panel admitted the stock sale was to push through the merger, but said it can`t be concluded that it goes against the interests of shareholders. It meant that since the necessity of merger is accepted that the stock sale to push through the merger was also fair.

The court also dismissed the claim that there was breach of duty and abuse of power of representation of Samsung C&T and KCC executives. On the claim that KCC management breached its duty, the court said, "The claim of breach of duty saying the price of KCC`s acquisition of Samsung C&T, which is 75,000 won (66.17 U.S. dollar) per share, is higher that merger price, 55,767 won (49.1 dollars) per share, contradicts with Elliott`s claim that Samsung C&T`s fair value is over 100,000 won (88.2 dollars) per share," pointing to Elliott`s loophole in logic.

taeho@donga.com