Shareholders to vote on bitterly disputed Samsung merger

A shareholder meeting to vote on one of South Korea's most hotly disputed mergers opened Friday, with the country's dominant conglomerate, Samsung, facing an unprecedented challenge from stakeholder activists led by a US hedge fund.

The proposed merger of two Samsung Group units would see the group's de facto holding company, Cheil Industries, take over construction firm Samsung C&T in an all-stock deal.

For Samsung's founding Lee family, the merger is a crucial step in its strategy to consolidate its control of the giant, multi-headed conglomerate, ahead of a generational transfer of power from ailing patriarch Lee Kun-Hee.

But a significant number of C&T investors, rallied by US hedge fund Elliott Associates -- the company's second-largest single shareholder -- have bitterly contested the takeover, arguing that it wilfully undervalues the C&T share price.

The merger topped the agenda of the C&T shareholder meeting that got underway at 9:30am (0030 GMT) with Samsung needing a two-thirds majority to push the merger through.

Experts say the outcome is too close to call following weeks of intense campaigning and lobbying by both sides -- in the courts, the media and on the doorsteps of individual retail shareholders.

A defeat for Samsung would be a landmark moment for shareholder activism in South Korea, where family-run conglomerates, or "chaebol," dominate the economy and are used to running their businesses with minimum investor interference.

For Samsung it would be a major blow that could have a significant knock-on effect for its strategy of streamlining the group into fewer, larger companies.

The family already controls Cheil and taking over C&T would solidify its grip on the entire conglomerate because the affiliate holds more than $10 billion in shares of Samsung Group units.

Elliot's argument is that C&T is being taken over in what amounts to a sweetheart deal that penalises its shareholders.

"We think that this merger ought not to happen as it's structured," the hedge fund's owner, Paul Elliott Singer, told an investor conference in New York on Wednesday.

"We think it's also important for the way Korea and Korean corporate governance is perceived in the world," Singer said.

Nationalist voices in the South Korean media have sought to portray the proxy battle as corporate Korea's fight against pernicious outside influence, with some commentaries straying into far-right territory with remarks about ruthless Jewish financiers.

The remarks forced Samsung to issue a statement, condemning anti-Semitism "in all its forms."