Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Event-Driven

Since the merger between Samsung C&amp;T and Cheil Industries was announced a month ago, the mantra from the two companies has been that C&amp;T needed to merge with Cheil because of synergies between the two businesses. Yesterday Cheil Industries co-CEOs along with Samsung C&amp;T's CEO and others presented at a Seoul presentation, outlining potential synergies, growth, shareholder measures, etc. They outlined how Cheil would consider raising the payout ratio (i.e. pay cash to its shareholders), buy back stock (i.e. pay cash to its shareholders), spend 800bn won (i.e. pay cash to someone else) in the next ten years to build a South Korean resort, and establish a set of governance committees ("to listen to minority shareholder feedback", among other things).As I am sure no reader needs reminding, after the announcement of the merger Elliot Management raised its stake in Samsung C&amp;T to 7+%, came out publicly against the deal, after having had behind-the-scenes discussions with the company for months, saying it was unfair, unlawful, unreasonable, etc. Samsung C&amp;T sold its treasury shares at the last minute to get KCC Corp the right to vote for the deal. Elliot took Samsung C&amp;T to court for an injunction against the merger, and against KCC's potential voting rights. A decision is due to be handed down by the Seoul Central District Court tomorrow, July 1. Separately, the Samsung C&amp;T CEO Choi Chi Hun is expected to hold a news conference tomorrow after a weekly meeting of Samsung Group executives.Today though, Cheil May Have Revealed the 'True Motive' Behind The Merger This morning Bloomberg reported "Cheil said the merged entity will be Samsung Group’s de facto holding company and the “vehicle of choice to capitalize on new business opportunities and drive future growth.”"Cheil WILL BE [my bold] Samsung Group's de facto holding company."  Does that mean it is not now? It sounds like a FUTURE de facto holding company (even though Cheil probably qualifies as one now, as per Elliot's <a href="http://www.fairdealforsct.com/present/" target="_blank">first presentation</a>, p25).Does that mean that the assets it WILL hold (but does not currently hold) will be a, or even the central factor in the merger decision between Cheil and Samsung C&amp;T? Since the merger was announced, Samsung C&amp;T's management and directors have not said anything about participating in a de facto Samsung Holding Company. If they were planning on doing so, one would expect them to conduct their business as directors showing a duty of care required by both Korean Civil Code and Commercial Code and the C&amp;T Articles of Incorporation to boot. Such a duty of care would, among other things, include a proper assessment of the relative value of the HOLDINGS that Samsung C&amp;T and Cheil Industries contributes to the new de facto Samsung Group Holding Company. Given that Cheil currently trades at 3.9x stated book value, and on a merger-ratio adjusted share price, Samsung C&amp;T trades at 0.7x stated book value (and an even lower percentage of NAV), it is clear that the relative value of the assets to be contributed to the de facto Samsung Group Holding Company are not being exchanged at fair terms. CONCLUSIONS<ul><li>Shareholders would be advised to look carefully at this aspect. Cheil has just said it WILL be the de facto Samsung Group holding company after the merger - it is not yet. </li><li>This should provide new ammunition for shareholders who are against C&amp;T's directors, though it comes quite late in the game. The Court's opinions for the ruling tomorrow are probably already written, but they might be appealed based on this new statement. </li><li>The statement CLEARLY IMPLIES that the result of the merger is that NEWCO will be an asset holding company. Given that Cheil currently trades at 3.9x book value and Samsung C&amp;T at 0.73x stated book, Samsung C&amp;T directors are giving up too much. </li></ul> Some previous Smartkarma reports on the Samsung C&amp;T/Cheil saga:<ul><li><a href="http://www.smartkarma.com/insights/samsung-c-t-too-big-to-cheil" target="_blank">Samsung C&amp;T:  Too Big to Cheil</a></li><li><a href="http://www.smartkarma.com/insights/samsung-c-t-completely-the-wrong-price-trillions-being-left-on-the-table" target="_blank">Samsung C&amp;T: Completely the Wrong Price - TRILLIONS being left on the table</a></li><li><a href="http://www.smartkarma.com/insights/samsung-c-t-quicknote-30-40-foreign-institutional-investors-ask-for-fairer-swap-rate" target="_blank">SAMSUNG C&amp;T QuickNote: "30-40 Foreign Institutional Investors Ask For Fairer Swap Rate"</a></li><li><a href="http://www.smartkarma.com/insights/samsung-c-t-quicknote-volume-patterns-and-ownership-changes-since-deal-announcement" target="_blank">SAMSUNG C&amp;T QuickNote: Volume Patterns and Ownership Changes Since Deal Announcement</a></li><li><a href="http://www.smartkarma.com/insights/shareholder-activism-around-samsung-c-t-legal-limitations" target="_blank">Shareholder Activism around Samsung C&amp;T - Legal Limitations</a></li><li><a href="http://www.smartkarma.com/insights/helmets-on-c-t-sells-treasury-shares-to-pensions-increase-stake" target="_blank">Helmets On - C&amp;T Sells Treasury Shares to KCC, Pensions Increase Stake</a></li><li><a href="http://www.smartkarma.com/insights/treasury-shares-differences-and-similarities-to-precedent-cases" target="_blank">Treasury Shares - Differences and Similarities to precedent cases</a></li><li><a href="http://www.smartkarma.com/insights/samsung-group-who-holds-what-b6a93db6-e0b4-4e15-b7a5-e01364b0ef72" target="_blank">SAMSUNG GROUP: Who Holds What?</a></li><li><a href="http://www.smartkarma.com/insights/samsung-group-immodest-accounting-and-a-modest-proposal" target="_blank">Samsung Group - Immodest Accounting and a Modest Proposal</a></li><li><a href="http://www.smartkarma.com/insights/south-korea-s-national-pension-service-smashing-traditions" target="_blank">South Korea’s National Pension Service - Smashing Traditions</a></li><li><a href="http://www.smartkarma.com/insights/the-holding-company-view-it-s-never-looked-so-good" target="_blank">The Holding Company View: It's Never Looked So Good</a></li></ul>Think I got all of them... More below the fold.

Since the merger between Samsung C&amp;T and Cheil Industries was announced a month ago, the mantra from the two companies has been that C&amp;T needed to merge with Cheil because of synergies between the two businesses. Yesterday Cheil Industries co-CEOs along with Samsung C&amp;T's CEO and others presented at a Seoul presentation, outlining potential synergies, growth, shareholder measures, etc. They outlined how Cheil would consider raising the payout ratio (i.e. pay cash to its shareholders), buy back stock (i.e. pay cash to its shareholders), spend 800bn won (i.e. pay cash to someone else) in the next ten years to build a South Korean resort, and establish a set of governance committees ("to listen to minority shareholder feedback", among other things).As I am sure no reader needs reminding, after the announcement of the merger Elliot Management raised its stake in Samsung C&amp;T to 7+%, came out publicly against the deal, after having had behind-the-scenes discussions with the company for months, saying it was unfair, unlawful, unreasonable, etc. Samsung C&amp;T sold its treasury shares at the last minute to get KCC Corp the right to vote for the deal. Elliot took Samsung C&amp;T to court for an injunction against the merger, and against KCC's potential voting rights. A decision is due to be handed down by the Seoul Central District Court tomorrow, July 1. Separately, the Samsung C&amp;T CEO Choi Chi Hun is expected to hold a news conference tomorrow after a weekly meeting of Samsung Group executives.Today though, Cheil May Have Revealed the 'True Motive' Behind The Merger This morning Bloomberg reported "Cheil said the merged entity will be Samsung Group’s de facto holding company and the “vehicle of choice to capitalize on new business opportunities and drive future growth.”"Cheil WILL BE [my bold] Samsung Group's de facto holding company."  Does that mean it is not now? It sounds like a FUTURE de facto holding company (even though Cheil probably qualifies as one now, as per Elliot's first presentation, p25).Does that mean that the assets it WILL hold (but does not currently hold) will be a, or even the central factor in the merger decision between Cheil and Samsung C&amp;T? Since the merger was announced, Samsung C&amp;T's management and directors have not said anything about participating in a de facto Samsung Holding Company. If they were planning on doing so, one would expect them to conduct their business as directors showing a duty of care required by both Korean Civil Code and Commercial Code and the C&amp;T Articles of Incorporation to boot. Such a duty of care would, among other things, include a proper assessment of the relative value of the HOLDINGS that Samsung C&amp;T and Cheil Industries contributes to the new de facto Samsung Group Holding Company. Given that Cheil currently trades at 3.9x stated book value, and on a merger-ratio adjusted share price, Samsung C&amp;T trades at 0.7x stated book value (and an even lower percentage of NAV), it is clear that the relative value of the assets to be contributed to the de facto Samsung Group Holding Company are not being exchanged at fair terms. CONCLUSIONSShareholders would be advised to look carefully at this aspect. Cheil has just said it WILL be the de facto Samsung Group holding company after the merger - it is not yet. This should provide new ammunition for shareholders who are against C&amp;T's directors, though it comes quite late in the game. The Court's opinions for the ruling tomorrow are probably already written, but they might be appealed based on this new statement. The statement CLEARLY IMPLIES that the result of the merger is that NEWCO will be an asset holding company. Given that Cheil currently trades at 3.9x book value and Samsung C&amp;T at 0.73x stated book, Samsung C&amp;T directors are giving up too much.  Some previous Smartkarma reports on the Samsung C&amp;T/Cheil saga:Samsung C&amp;T:  Too Big to CheilSamsung C&amp;T: Completely the Wrong Price - TRILLIONS being left on the tableSAMSUNG C&amp;T QuickNote: "30-40 Foreign Institutional Investors Ask For Fairer Swap Rate"SAMSUNG C&amp;T QuickNote: Volume Patterns and Ownership Changes Since Deal AnnouncementShareholder Activism around Samsung C&amp;T - Legal LimitationsHelmets On - C&amp;T Sells Treasury Shares to KCC, Pensions Increase StakeTreasury Shares - Differences and Similarities to precedent casesSAMSUNG GROUP: Who Holds What?Samsung Group - Immodest Accounting and a Modest ProposalSouth Korea’s National Pension Service - Smashing TraditionsThe Holding Company View: It's Never Looked So GoodThink I got all of them... More below the fold. 

C&T/Cheil:  A Big Day Tomorrow, But....  Did Cheil Put Their Foot In It?

Since Cheil Industries (028260 KS) and Samsung C&amp;T (000830 KS) announced their merger in an effort to increase Lee family control of Samsung Electronics shares (and shares in other group companies) on a post-inheritance-tax pro-forma basis, the Smartkarma universe has been regularly updating readers regarding the situation.A RECAP:  <a href="http://www.smartkarma.com/insight_providers/5" target="_blank">Arzish</a> started things off with <a href="http://www.smartkarma.com/insights/samsung-c-t-too-big-to-cheil" target="_blank">Samsung C&amp;T: Too Big to Cheil</a> just after deal announcement. After Elliot announced its increased position, I followed up with <a href="http://www.smartkarma.com/insights/samsung-c-t-completely-the-wrong-price-trillions-being-left-on-the-table" target="_blank">"Completely the Wrong Price: Trillions being left on the table"</a> then a <a href="http://www.smartkarma.com/insights/samsung-c-t-quicknote-30-40-foreign-institutional-investors-ask-for-fairer-swap-rate" target="_blank">QuickNote</a> suggesting Dutch national pension manager APG was leading a group of foreign shareholders to ask C&amp;T for a better merger ratio, and a <a href="http://www.smartkarma.com/insights/samsung-c-t-quicknote-volume-patterns-and-ownership-changes-since-deal-announcement" target="_blank">piece</a> on volume changes and ownership since the deal was announced. <a href="http://www.smartkarma.com/insight_providers/16" target="_blank">Crispin Francis</a> added a <a href="http://www.smartkarma.com/insights/shareholder-activism-around-samsung-c-t-legal-limitations" target="_blank">piece</a> on the legal limits of shareholder activism. Another <a href="http://www.smartkarma.com/insights/helmets-on-c-t-sells-treasury-shares-to-pensions-increase-stake" target="_blank">piece</a> was added when C&amp;T announced it had sold its Treasury Shares to KCC Corp (a large shareholder of Cheil Industries and a friendly party) and Crispin followed up with a <a href="http://www.smartkarma.com/insights/treasury-shares-differences-and-similarities-to-precedent-cases" target="_blank">piece</a> on legal precedents to injunctions filed against treasury share sales in proxy battle situations with a 'hostile' party. The discussion section of several pieces have been of additional interest I think. THIS NOTE adds a table - as comprehensive as possible - of cross holdings among Lee family members, the Samsung foundations, and major Samsung group companies (listed and unlisted). It can be used to estimate where the potential interest lies in future mergers in order to obtain greater family control.More below the fold.

Since Cheil Industries (028260 KS) and Samsung C&amp;T (000830 KS) announced their merger in an effort to increase Lee family control of Samsung Electronics shares (and shares in other group companies) on a post-inheritance-tax pro-forma basis, the Smartkarma universe has been regularly updating readers regarding the situation.A RECAP:  Arzish started things off with Samsung C&amp;T: Too Big to Cheil just after deal announcement. After Elliot announced its increased position, I followed up with "Completely the Wrong Price: Trillions being left on the table" then a QuickNote suggesting Dutch national pension manager APG was leading a group of foreign shareholders to ask C&amp;T for a better merger ratio, and a piece on volume changes and ownership since the deal was announced. Crispin Francis added a piece on the legal limits of shareholder activism. Another piece was added when C&amp;T announced it had sold its Treasury Shares to KCC Corp (a large shareholder of Cheil Industries and a friendly party) and Crispin followed up with a piece on legal precedents to injunctions filed against treasury share sales in proxy battle situations with a 'hostile' party. The discussion section of several pieces have been of additional interest I think. THIS NOTE adds a table - as comprehensive as possible - of cross holdings among Lee family members, the Samsung foundations, and major Samsung group companies (listed and unlisted). It can be used to estimate where the potential interest lies in future mergers in order to obtain greater family control.More below the fold.

South Korea

Cheil Worldwide Inc. provides a wide range of marketing services such as new product development and advertisement, brand management, advertising budget analysis, and advertising effectiveness evaluation.  The Company also creates, prints, publishes, and produces promotional and advertising materials.

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Cheil Worldwide (030000 KS)

C&T/Cheil: A Big Day Tomorrow, But.... Did Cheil Put Their Foot In It?

Since the merger between Samsung C&T and Cheil Industries was announced a month ago, the mantra from the two companies has been that C&T...

Travis Lundy

SAMSUNG GROUP: Who Holds What?

Since Cheil Industries (028260 KS) and Samsung C&T (000830 KS) announced their merger in an effort to increase Lee family control of Samsung...

Travis Lundy

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