A couple of weeks ago, I called Elliott Associates a sharp pebble in the shoe for Samsung’s founding Lee family. Well, today, that sharp pebble just grew spikes, fangs, and turned itself into a veritable nightmare for the entire group.
In a 27-page presentation intended for the proxy advisory firm ISS, Elliott slams Cheil Industries’ takeover bid for Samsung C&T as unlawful and unfair, citing the $7 billion worth of value destruction C&T shareholders would experience should the two successfully merge.
Contrasting C&T’s “obvious” undervaluation to Cheil’s “extreme” overvaluation, the NY-based hedge fund goes on to point out that Cheil’s valuation of C&T does not reflect its target’s standing as one of Korea’s most consistently profitable construction and trading businesses, and actually discounts its ownership stakes in the group’s several affiliates while Cheil – who valued its shares at a staggering 131 times price to earnings compared to the Kospi Index’s 11 times – did not reflect the fact that they themselves have low profits and an unimpressive 3.5% average return on equity.
Elliott also called into question Cheil’s claims of synergy between the companies, noting that Cheil and C&T’s construction businesses are vastly different, and has also challenged Cheil’s “diversification” benefit, citing that shareholders have no need for a possibly expensive merger to happen to achieve diversification.
They do however, recognize the need for a reconstruction of the group in order for the succession to be successful, just as long as it complies with good governance standards and the recognition of C&T’s inherent value.
Check it out, it’s a great read. Well, as long as you’re not one of the Lee’s.
Photo credit: Charles Roper via Flickr