Was the 'Samsung C&T-Cheil Industries Merger 9 Years Ago' Justified? Court to Deliver Lee Jae-yong Trial Verdict on the 5th

First Trial Verdict After 3 Years and 5 Months of Prolonged Psychological Proceedings

The court's first ruling on whether the merger between Samsung C&T and Cheil Industries in September 2015 was legitimate will be announced on the 5th. This comes about 3 years and 5 months after the prosecution of Samsung Electronics Chairman Lee Jae-yong.

According to the legal community on the 2nd, the Seoul Central District Court Criminal Division 25-2 (Presiding Judge Park Jeong-je, Judges Ji Gwi-yeon and Park Jeong-gil) will hold the first trial sentencing hearing for a total of 14 defendants, including Chairman Lee, starting at 2 p.m. on the 5th. The sentencing date was originally set for the 26th of last month but was postponed once. The defendants, including Chairman Lee, were indicted in September 2020 on charges of violating the Capital Markets Act and the External Audit Act during the merger process of Samsung C&T and Cheil Industries about nine years ago.

Samsung C&T and Cheil Industries pushed forward with the merger through their boards of directors in May 2015. At that time, the merger was seen as the birth of Samsung Group's de facto holding company and a key procedure for Chairman Lee Jae-yong's succession of management rights, drawing significant attention. However, the merger ratio between the two companies became an issue. The condition was to exchange approximately 3 shares of Samsung C&T for 1 share of Cheil Industries (ratio 1:0.35), which was criticized as an excessively unfavorable ratio for Samsung C&T shareholders. On the other hand, Chairman Lee, who held a 23.2% stake in Cheil Industries at the time, was able to secure stable group control under relatively favorable conditions through the merger of the two companies.

The prosecution judged that the Future Strategy Office (FSO), which was the core leadership of Samsung Group at the time, intentionally lowered Samsung C&T's stock price while boosting Cheil Industries' stock price. They believed that under the FSO's leadership, various fraudulent transactions occurred, including spreading false information, announcing false favorable news, purchasing shares by major shareholders, illegal lobbying targeting the National Pension Service, and market manipulation through concentrated repurchase of treasury stocks. As a result, the prosecution concluded that the merger was conducted at an unfavorable ratio while Samsung C&T's corporate value was not properly evaluated, causing losses to shareholders. In particular, since the National Pension Fund was also a major shareholder holding about 11.21% of Samsung C&T's shares at the time, it faced criticism that the people's retirement funds were used for the illegal succession of the Samsung family.

The prosecution identified Samsung C&T directors as the main actors of breach of fiduciary duty, with Chairman Lee as the instigator or accomplice. Additionally, the defendants are also charged with accounting fraud related to Samsung BioLogics, a subsidiary of Cheil Industries.

This first trial verdict comes after an extraordinarily long trial period of 3 years and 5 months. In the sentencing hearing held on November 17 last year, the prosecution requested the court to sentence Chairman Lee to 5 years in prison and a fine of 500 million won.