Samsung family tightens grip on company with deal

SEOUL, South Korea – Shareholders approved Friday a highly contested deal that strengthens the Samsung family’s grip on the world’s largest smartphone maker, sparking criticism that South Korea lacks sufficient protections for foreign investors and small shareholders.

Samsung construction company Samsung C&T said that 69.5 percent of shareholders who voted supported the takeover of it by another Samsung company, Cheil Industries.

The takeover needed two-thirds of votes cast for approval. Market watchers expected a close vote after Elliott Associates, an American hedge fund that is the third largest shareholder in C&T, rallied opposition against the deal that it called unfair.

Lee Jae-yong, the son of Samsung’s ailing chairman, is assuming a bigger leadership role at the South Korean conglomerate but lacks a significant stake in its flagship Samsung Electronics. The all-stock takeover of C&T by Cheil will give him that stake without having to spend billions of dollars to buy it from other shareholders.

The outcome of the vote is likely to take a toll on South Korea’s reputation overseas as a fair place for investment.

The country has long faced criticism that the founding families of its big business groups, known as chaebol, exercise too much power over companies that have become publicly traded. Those concerns about poor governance and weak shareholder rights have resulted in foreign investors marking down the value of South Korean shares.

“Foreign investors would not want to take inherent management risk by investing in Korean companies with such poor corporate governance that lead to shareholders’ value being exploited by the founding family members for their own benefit not shareholders,” said Thomas Choi, founder of Third Square Investments, which does not own any shares in Cheil or Samsung C&T.

The heated debate before the vote showed shareholders were sharply divided. Those that opposed the deal said its terms were too favorable to shareholders at Cheil Industries.

“People with C&T shares are crying and those with Cheil shares are smiling. It’s too unfair,” an elderly shareholder told the meeting before the vote. He said he would vote for the deal, but expressed displeasure with the Samsung C&T board of directors. “There are a lot of people who are just biting the bullet.”