April 25, 2024

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[THE INVESTOR] South Korea is facing a second investor-state dispute settlement over the controversial merger of two Samsung units in 2015, according to the Ministry of Justice on July 4.

The ministry said it has received a notice of intent from US hedge fund Mason Capital Management seeking US$175 million in compensation for losses over the merger between Samsung C&T and Cheil Industries three years ago.

Mason Capital owned 2.2 percent in Samsung C&T at the time and opposed the merger. 

“Various Korean government officials, including former Minister of Health and Welfare Moon Hyung-pyo and former Chief Investment Officer of Korea’s National Pension Service Hong Wan-sun, improperly and illegally manipulated the Samsung C&T shareholder vote to approve the merger. As a result, NPS, a shareholder of Samsung C&T and an organ of the State, wrongfully voted in favor of the merger, causing the merger to be approved to the detriment of Samsung C&T’s shareholder,” read the notice of intent.

It claims the actions violated its obligation under the free trade agreement to obligations to accord US investments fair and equitable treatment -- no less favorable treatment than Korean investors -- and to pay fair and adequate compensation for such investments.

This is a second arbitration attempt taken by a US investor. In April, US activist fund Elliott Associates also stated its intention to file a lawsuit citing similar grounds. Elliot, holding a 7 percent stake in Samsung C&T, is seeking a US$670 million payout.

South Korea has 90 days to decide whether to settle the matter before it goes to an international tribunal for ISD.

The merger deal with a swap ratio of 1:0.35 under which one Samsung C&T share was exchanged for just 0.35 shares in Cheil Industries is considered to have been a step to cement the leadership succession from bed-ridden Chairman Lee Kun-hee to his son Vice Chairman Lee Jae-yong, as the younger Lee was able to grab a bigger stake in Samsung C&T.

Meanwhile, the NPS, which played a key role in supporting the merger, on July 3 said its decision to back the merger was based on manipulated internal reports.

By Park Ga-young (gypark@heraldcorp.com)