HONG KONG--(BUSINESS WIRE)--Elliott served its Notice of Arbitration and Statement of Claim against the Republic of Korea (ROK) on July 12, 2018 seeking damages arising from the former ROK administration’s unlawful intervention in the merger of Samsung C&T and Cheil Industries (Merger). Elliott’s loss and damage is currently estimated at no less than approximately US $770 million. Yesterday’s service of arbitration papers follows Elliott’s 13 April 2018 notice of intention to submit its claims to arbitration and subsequent efforts to amicably negotiate a resolution with the ROK. To date, the parties have not been able to resolve the dispute.
Prior to the Merger, Elliott had over many years been an investor in Samsung C&T, recognizing the company’s undervaluation. But when Elliott vocalized its opposition to the Merger, which was expected to cause substantial loss to shareholders including Elliott, the former ROK administration took action to help the Lee family’s financial interests in Samsung.
As detailed in the Notice of Arbitration and Statement of Claim, in clear violation of the Korea-United States Free Trade Agreement (KORUS FTA), the former administration of the ROK acted by improper means and with improper motives in its intervention in the Merger. In particular, the former administration of the ROK manipulated the vote of a state agency, the National Pension Service (NPS), which held the casting vote on the Merger.
Criminal prosecutions in the ROK and elsewhere have revealed that the former administration’s support for the Lee family at the expense of foreign investors was handsomely compensated by Samsung and JY Lee. This scandal has led to then-President Park’s impeachment and removal, as well as criminal trials and convictions in ROK domestic courts, including those of senior Samsung Executives, the former Minister of Health and Welfare, and the former Chief Investment Officer of the NPS.
Elliott was not the only victim of this manifestly unfair and inequitable treatment. The ROK’s subversion of the NPS’ internal processes to ensure a favorable vote for the Merger despite economic irrationality caused the NPS to breach its public duties owed to millions of Korean pension-holders – a fact the NPS has admitted in its own recent internal review. Had Elliott’s meritorious criticisms of the Merger not been overridden by vote manipulation, the Korean pensioners’ interests would also have been protected from loss instead of sacrificed to the more powerful interests of the prior administration and the Samsung chaebol.
It is regrettable that the former administration took a hostile approach to foreign investment rather than embracing it with a view to promoting domestic innovation and maintaining economic growth. Like all prominent economies, Korea obviously has no interest in being viewed as hostile to foreign investors, particularly when other economies in the Asia-Pacific region are fast becoming potentially attractive alternatives. But the actions of the former administration of the ROK relating to the Merger severely damaged the country’s image internationally.
To avoid losing investor confidence, the ROK government should uphold its investment treaty obligations towards foreign investors including by paying damages for past breaches and working proactively to prevent future violations and no longer shielding the ruling families of the chaebols at the expense of investors. Maintaining credibility internationally among investors is critical to attracting foreign investment and propelling Korea to even greater prosperity.
Elliott still hopes to resolve this matter amicably through settlement, but until such time as that happens will vigorously enforce its rights on behalf of its investors.
Elliott Management Corporation manages two multi-strategy funds which combined have approximately $35 billion of assets under management. Its flagship fund, Elliott Associates, L.P., was founded in 1977, making it one of the oldest funds of its kind under continuous management. The Elliott funds’ investors include pension plans, sovereign wealth funds, endowments, foundations, funds-of-funds, and employees of the firm. Elliott Advisors (HK) Limited is an affiliate of Elliott Management Corporation. With a strong understanding of the Korean market and corporate structures, Elliott has a history of successfully enhancing shareholder value in Korea.