Korea Times | 1 May 2018
Elliott moving to sue gov’t over Samsung C&T merger
By Nam Hyun-woo
Elliott is seeking an investor-state dispute settlement (ISDS) against the Korean government, claiming its alleged intervention in the merger of Samsung C&T with Cheil Industries has caused the fund financial damages.
According to the Ministry of Justice on Tuesday, the U.S. activist fund has recently sent a "notice of intent" to the ministry saying it has the intention to seek an ISDS over its claim it has suffered losses as a Samsung C&T shareholder because the previous administration unfairly intervened to okay the two companies’ merger in 2015.
The letter is commonly a process prior to filing of an actual ISDS to the International Centre for Settlement of Investment Disputes (ICSID). According to an official at the ministry, the fund can file the ISDS after a 90-day "grace period," as it is stated in the Korea-U.S. Free Trade Agreement.
During the merger, Elliott, the third-largest shareholder in Samsung C&T, expressed its opposition, asking Samsung management to raise the stock swap ratio because it was unfair for Samsung C&T shareholders.
The hedge fund even filed an injunction request to a domestic court to block the deal, but saw the request turned down and the merger took place as Samsung wanted, thanks to an agreement from Samsung C&T’s largest shareholder, the National Pension Service (NPS).
"The ministry is currently reviewing the letter," the ministry official said. "Like other notices of intent, the Elliott notice does not include details of what it demands from Korea or from which part of the merger incurred losses to the fund."
"Generally, a government that receives a notice of intent will decide whether to proceed with talks with the sender about the details and whether to take the case to the ICSID or settle it between them," he said. "However the ministry is yet to confirm whether it should proceed with talks about the Elliott case."
If the government turns down Elliott’s notice of intent and the fund takes the case to the ICSID, it will be the fourth ISDS case sought against Korea, following global companies such as Hanocal Holding, Dayyani and Lone Star Funds.
Though the ministry said it is "reviewing Elliott’s letter," lawyers say there is a high chance of the ministry letting the fund take the case to the international court, because the government has engaged ICSID battles without prior settlements in previous cases and there would be "no reason to give up before a fight."
Since the Elliott letter came amid the Moon Jae-in administration’s moves in line with the belief the previous Park Geun-hye government granted the Samsung C&T merger in exchange for favors, some say the Moon government has "encouraged the fund" by providing logic for its claim.
Amid investigations of former President Park’s corruption scandal, then-Health and Welfare Minister Moon Hyung-pyo was found guilty of abusing his authority in the NPS to vote in favor of the Samsung C&T deal after pressure from Park. The merger helped Samsung Electronics Vice Chairman Lee Jae-yong tighten his grip on Samsung Group.
The Moon government has also been promoting such a belief, with the Ministry of Health and Welfare earlier this month branding the NPS’ agreement one of the archaic irregularities it should "clean up."
The government is also pushing forward a revision to the Commercial Act to enhance minor shareholders’ rights, but it is also providing a favorable condition for hedge funds such as Elliott to sway a company’s managing rights.
The hedge fund has been making headlines recently as it is staging a tug-of-war with Hyundai Motor Group over the group’s plans to revamp the shareholding structure among its affiliates.