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By Bloomberg

The planned leadership succession at Samsung Group just hit a speed bump.

Elliott Associates LP, the hedge-fund firm run by billionaire Paul Elliott Singer, said Thursday it bought a 7.12 percent stake in construction firm Samsung C&T to participate in its management. Elliott called C&T’s proposed takeover by Cheil Industries Inc. “neither fair to nor in the best interests of Samsung C&T’s shareholders.” Shares of both companies surged in Seoul.

The proposed all-stock $9.3 billion deal between the Samsung Group affiliates riled some investors when announced last week. Samsung C&T holds more than $12 billion in other group shares, including $7 billion in Samsung Electronics Co., and corporate watchdogs said the deal was aimed at solidifying control by the founding Lee family before a transition. Cheil is the group’s de facto holding company.

“Samsung Group will do whatever it can to push the merger through because that stands at the center of the whole succession plan,” said Park Ju Gun, president of CEOSCORE. “For Samsung, accomplishing the merger is not something arguable, it’s a must.”

Shares Surge

The largest shareholder in Samsung C&T is Korea’s National Pension Service with about 10 percent, according to data compiled by Bloomberg. A spokeswoman, Chi Young Hye, said no decisions have been made.

“We’ll examine the issue sufficiently in a way to improve shareholder value before making a decision,” she said in a text message Thursday.

Samsung C&T shares surged as much as 13 percent to 71,000 won in Seoul on Thursday. Cheil also rose as much as 8.8 percent to 198,000 won.

Elliott declined to comment on its future plans through its public relations agency in Seoul. The fund, which said in a statement has $26 billion under management, bought about 11.1 million shares of Samsung C&T in the market, paying 63,500 won per share, according to a regulatory filing.

Cheil’s proposed takeover “significantly undervalues” Samsung C&T, Elliott said in an e-mailed statement.

“I can imagine some shareholders were unhappy about the acquisition given C&T was sold on the cheap,” said Choi Nam Kon, an analyst at Yuanta Securities Korea Co. in Seoul. “But the price has been on the rise since, suggesting that the market isn’t too pessimistic about the merger and the business outlook of the combined entities.”

Boosting Value

The deal with Cheil will boost company value, Samsung C&T said in an e-mailed statement after Elliott’s filing. Samsung Group and Cheil had no comment.

“I don’t think Elliott’s comments will pose an obstacle to the merger,” said Han Byung Hwa, an analyst at Eugene Investment & Securities Co. in Seoul. “The shares have risen above the price Samsung C&T offered to pay to shareholders opposing the merger. They could always opt to sell their shares in the market.”

Shareholder activism isn’t widespread in South Korea, even though criticism of the country’s family-run chaebol, or conglomerates, is growing.

Shareholder Alliance

Zebra Investment Management, set up by the former head of Allianz SE’s South Korean asset-management unit, focuses on trying to shake up companies that put the interests of founding families above those of other shareholders.

“Elliot’s decision may trigger an alliance among shareholders, especially foreign investors,” Chief Executive Officer Bruce Lee said. “This is only natural. A company’s shareholder who thinks that a deal is unfavorable for the company should be able to voice their concerns.”

Attention on Samsung Group has heightened as its leadership transitions to a new generation following patriarch Lee Kun Hee’s heart attack last year. His heir apparent, Lee Jae Yong, 46, is exerting more influence throughout the conglomerate, and together with his siblings faces an estimated $6 billion tax bill to inherit his father’s assets.

Elliott is known for its legal tussle with Argentina. It has been seeking to enforce U.S. court judgments against the country for its 2001 default on $95 billion of debt. NML Capital, a unit of Elliott, sued for full repayment and won judgments worth $1.7 billion from a U.S. court, which Argentina refuses to pay.

In Asia, the firm built a stake in Wing Hang Bank Ltd. before selling it last year after shareholders accepted a bid from Oversea-Chinese Banking Corp. to take the Hong Kong lender private.