S Korean prosecutors to examine Elliott deal with Samsung C&T
South Korean prosecutors are looking into allegations that Elliott Management may have violated disclosure rules during the US activist fund’s purchase of Samsung C&T shares in 2015.
They are investigating whether there was any breach of rules when Elliott acquired shares of Samsung C&T, a trading company, through total return swaps with foreign brokerages and whether the fund disclosed its increased stake in the Samsung unit in time, an official at the Seoul Southern District Prosecutors’ Office said on Thursday.
The investigation comes soon after Elliott confirmed it was seeking compensation from Seoul over the former South Korean government’s “unlawful” intervention in the contentious 2015 merger of two Samsung units.
In 2015, Elliott took on Samsung, South Korea’s biggest family-run conglomerate, over a merger between Samsung C&T and Cheil Industries, saying the merger ratio was unfavourable to Samsung C&T shareholders.
The fund, with a 7 per cent stake in Samsung C&T at that time, narrowly failed to block the $8bn merger as South Korea’s state-run pension fund, a key shareholder of Samsung C&T, supported the deal.
The controversial deal was at the heart of an ensuing massive corruption scandal involving the country’s political and business leaders, leading to the conviction of the country’s former president Park Geun-hye and Samsung’s billionaire heir Lee Jae-yong.
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The country’s former health minister, in charge of the National Pension Service and the chief investment officer of the NPS, also received prison sentences for pressuring the NPS to side with Samsung in the proxy fight.
Elliott said the deal incurred significant damages and it wants to negotiate with Seoul regarding compensation. “The facts revealed since the 2015 merger are clear: the web of corruption reaching from the president herself down to the NPS, unfairly damaged Elliott and other Samsung C&T shareholders,” the fund said on Tuesday.
Elliott has also denied any wrongdoing and said it had co-operated with South Korean prosecutors over the case. “Elliott used swaps lawfully and in a manner consistent with Korean law,” the fund said on Thursday.
Elliott added that the former South Korean administration violated the US-Korea free trade agreement and its action in favour of the Samsung deal “constituted manifestly unfair and inequitable treatment of Elliott”. But it did not disclose how much it would seek in damages.
The New-York based hedge fund sent a notice of intent last month to Seoul’s justice ministry, asking for resolution over its objection to the merger. If the two sides fail to resolve the issue within three months of the notice, Elliott can initiate an investor-state dispute against Seoul under the free-trade agreement, according to Seoul’s justice ministry.
Elliott is challenging another family-run Korean conglomerate, Hyundai Motor Group, over its reorganisation plan, demanding it adopt a holding company structure and boost shareholder returns.
In response, Hyundai Motor last week announced its first stock cancellation in 14 years, worth $890m, and its affiliate Hyundai Mobis said this week that it would cancel about Won600bn ($557m) in treasury shares from next year.
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