Samsung’s minority shareholders defeat global hedge fund

It was a narrow victory. The result shows that Samsung C&T Corporation was highly likely to lose had it not been for minority shareholders. After all, Samsung C&T’s strategy to visit scattered minority shareholders in the country and secure a power of attorney worked out.

○ The voting power of 2.86 percent point

At an extraordinary shareholders’ meeting held at aT Center on Friday in Seoul, 69.53 percent voted positive for the approval of merging deal with Cheil Industries, which translates into 92,023,660 yes out of 132,355,800 voters. The participation rate of shareholders with voting rights was 84.73 percent. In order the merging plan to be passed, two-thirds of participating shareholders (66.67 percent) had to express their agreement. In the end, the plan was passed by a close margin of 2.86 percent points or 3.78 million shares.

“We believe that some 10,000 minority shareholders who own 3.78 million shares deserve credit for the win,” sources from Samsung said, meaning they have played significant role in winning the vote. Since last month when voting competition between Samsung C&T Corporation and Elliott took off, Samsung C&T Corporation has searched for minority shareholders around the nation to secure their power of attorney.

“It can be said that about 1-1.5 percent or 2 million shares were collected every day. Without just two days of POA collection, we would have lost the battle,” a high-ranking employee of Samsung C&T Corporation explained. This remark shows the victory with the margin of 3.78 million votes was so close.

○ Decisive swing voters of 16.87 percent

Having watched the winning process for the merge deal, Samsung Group is heaving a sigh of relief as well. Previously, Samsung predicted that most of foreign shares were sided with Elliott based on which it analyzed that at least 15 percent shares from minority shareholders should be secured to win the voting.

Up to date, some 42.04 percent of shares have turned out to be friendly to Samsung Group, which include 13.83 percent from special relations with the group, 5.96 percent of treasure stocks that have been transferred to KCC, 11.21 percent of national pension and 11.05 percent of domestic institutional investors as well as 1.41 percent that are personally owned by Chairman Lee Kun-hee of Samsung Electronics.

Translated into the total number of shares, 69.53 percent of positive voting on the day equals to 58.91 percent. This means that 16.78 percent turned out to be positive out of previous swing voters (such as minority shareholders), which is slightly higher than 15 percent that Samsung targeted in the beginning.

On the day, an attorney from Elliott brought up an issue concerning Chairman Lee’s delegation of his voting right. When asked “In the absence of Chairman Lee due to his health issue, let us know whether and when he submitted a POA if he did” by Elliott, Samsung C&T CEO Choi Chi-hun responded, “Chairman Lee has long delegated his power of attorney in a comprehensive manner. Not only at the general shareholders meeting this year but also at the previous meeting, his POA has been represented by the previously-delegated power.”

○ Unexpectedly high attendance rate for shareholders meeting

Unexpectedly higher participation rate of shareholders meeting was another contributing factor.

The attendance rate this time was some 25 percent points higher than 60 percent that Samsung C&T Corporation has recently seen as the attendance rate of its general shareholders meeting. “Given the interest of people, we have expected the maximum of 80 percent of shareholders’ participation. We have never expected that nearly 85 percent would take part in. With some 70 percent attendance, we need 47 percent of friendly shares. As attendance rate reached 84.73 percent, we had 56.48 percent of shares that were in favor of us,” explained sources from Samsung C&T Corporation.

“Articles of corporation of many foreign pensions and funds prevent them from exercising their voting rights at shareholder’s meeting. It seems that Samsung C&T Corporation has secured their target of minority shareholders and some of the foreign shares have chosen not to be sided with Elliott,” sources from financial circles reckoned.

Immediately after the meeting, President Choi Chi-hun said “Having taken part in Investors Relations, I have learned a lot from all of you including those shareholders who have expressed their opposition to the merge. We appreciate once again and will do our work better by fixing the point that they have pointed out.”

jhk85@donga.com