Azernews.Az

By Bloomberg

Choi Chi Hun, who’s at the center of one of the most contentious mergers in South Korean history, says he’s got a good argument for the shareholders opposing the deal: There’s no other way to keep a company this big growing.

“There is no plan B,” Choi said Thursday in his first sit-down interview as chief executive officer of Samsung C&T Corp. “On our own, growth would have been slower, and more importantly, profitability would be lower because of competition.”

Choi wants to sell the company to Cheil Industries Inc. -- another part of the Samsung Group empire -- citing synergies that will result in sales nearly doubling to 60 trillion won ($54 billion) by 2020. That’s kicked off a proxy fight with billionaire activist Paul Elliott Singer, who says the company is selling itself dirt cheap so the founding family can tighten its grip over Korea’s largest conglomerate at the expense of minority shareholders -- allegations C&T denies.

As an example of the synergies, the 20-year General Electric Co. veteran said complementary services will create a construction giant able to provide a one-stop shop for customers, just like his former employer did.

“This is what I’ve been trying to bring in for the last year and half,” Choi, 57, said from his office in Seoul. “I’m really excited about this.”

Early Victory

Local brokerages from Kyobo Securities Co. to Eugene Investment & Securities Co. have bought into the synergy story and have warned that C&T’s stock -- which is trading at about 20 percent above the level it was before the merger announcement -- will fall if the combination collapses. Some said the deal’s benefits will spread beyond just the companies.

“If merger fails, it will be no good for C&T,” said Kim Dae Jun, a Seoul-based analyst at Korea Investment & Securities Co. “The merger will also streamline Samsung’s complex web of cross-shareholdings by setting up a holding company and cutting down the number of affiliate companies. That’s also a good thing for the Korea market in the long run.”

The trick is getting other investors to agree before the looming proxy fight on July 17. Samsung won an early battle when the Seoul Central District Court on July 1 threw out a request by Singer’s Elliott Associates LP fund to block the vote, citing lack of evidence C&T pursued the merger for the benefit of the Lee family, Samsung Group or Cheil.

Options Considered

At the center of the dispute is Cheil’s all-stock offer, currently valued at 9.8 trillion won, which has been below C&T’s market value since the proposal became public in late May. What’s more, C&T holds more than 12 trillion won in shares of Samsung group units.

Still, Choi said that before Cheil came knocking, South Korea’s largest builder had been considering its options -- including M&A, though he wouldn’t elaborate -- to revive growth amid a slumping construction market.

“We had not considered or thought about a merger with Cheil before we were approached in late April,” Choi said. “We were considering all options, but a merger with Cheil wasn’t one of them.”

The decision to merge was made quickly -- in about a month -- because both companies are from the Samsung Group, meaning they have the same philosophy, as well as similar management and accounting systems, Choi said. That helped shorten the due- diligence process, he said.

Samsung Man

Choi knows about Samsung culture. After having worked at various businesses within GE for two decades, he joined Samsung Group, starting as an executive adviser to the CEO of technology-giant Samsung Electronics Co. in 2007. He later became CEO of Samsung SDI Co. in 2009 and Samsung Card Co. in 2010 before moving to take on his current role in 2013.

Then business began souring.

C&T’s rationale for looking at options has centered around the idea that analysts were so pessimistic over its outlook -- Choi declined to provide the company’s own forecasts -- that 2017 revenue would be below what it was in 2014. While Elliott has said such pessimism was too hasty and short-sighted, it isn’t alone in questioning the gloominess of a company that built the world’s tallest building in Dubai.

No Meeting

“Nowhere does the board discuss, in its own terms, the veracity of these estimates relative to internal projections,” proxy advisory firm Glass Lewis & Co. wrote in a July 1 report recommending investors oppose Cheil’s offer. “This seemingly unchecked external perspective is paired with loose observations of operational risk.”

Asked why he didn’t meet Elliott to sort out their differences after the fund began a public campaign to oppose the deal, Choi said he hasn’t received any such request and added that there wouldn’t be much he could say even if he met them.

As to Cheil, whose businesses range from amusement parks to fashion and construction, Choi said C&T could leverage Cheil’s services to win construction projects in regions such as the Middle East and Southeast Asia.

“Not only is profit good in the services business, it also builds relationships,” Choi said. “That could help lead to follow-up orders and put us in a better position.”

The merger would also open more opportunities for C&T to participate in recreational businesses as Cheil has the capability to design, operate and maintain amusement parks, while Samsung C&T knows how to build them, he said.