Elliott vs Samsung C&T Contract Money Lawsuit Round 2 Begins on the 13th [Invest&Law]

"Elliott Demands 'Unsettled Delay Interest,'
Loses to Samsung C&T in First Trial
Interpretation of Secret Agreement Expected
to Remain Key Issue in Appeal"

The second round of the lawsuit over the repayment of agreed funds between the U.S.-based hedge fund Elliott and Samsung C&T, concerning the 'Samsung C&T and Cheil Industries merger' secret agreement made in 2016, is set to intensify. Elliott claims that, like other shareholders who prolonged legal disputes with Samsung C&T, they should receive additional delay interest.

According to the legal community on the 11th, the Seoul High Court Civil Division 16 will hold the first appellate hearing of Elliott's lawsuit against Samsung C&T for repayment of agreed funds at 10:15 a.m. on the 13th.

This case originated during the 2015 merger process between Samsung C&T and Cheil Industries. At that time, Elliott held 7.12% of Samsung C&T shares and opposed the merger with Cheil Industries, filing a petition with the court to adjust the stock purchase price. They requested the court to properly evaluate the announced stock purchase price per share (57,234 KRW), which they considered excessively low.

In 2016, the Seoul Central District Court ruled that Samsung C&T's announced purchase price was appropriate. Elliott appealed this decision, and during the appeal process, Elliott and Samsung C&T reached a 'secret agreement.' The agreement stipulated that Elliott would withdraw the lawsuit in exchange for compensation equal to that paid to other shareholders. Urgently needing to recover their investment, Elliott received the stock purchase price calculated at 57,234 KRW per share plus delay damages up to March 2016 and withdrew the lawsuit.

In 2022, the Supreme Court determined that 66,602 KRW per share was an appropriate price for Samsung C&T shares. Since the per-share price was higher than the initially received purchase price, Elliott received approximately 72.4 billion KRW (65.9 billion KRW after tax deduction) from Samsung C&T as the difference. However, they did not receive delay interest to the extent that other shareholders who continued litigation until the Supreme Court ruling did.

Subsequently, in 2023, Elliott filed a lawsuit demanding Samsung C&T return about 26.7 billion KRW, claiming "unsettled delay interest." Meanwhile, Samsung C&T countered, stating, "We have already paid 65.9 billion KRW based on the agreement. This amount should be considered inclusive of delay interest."

The key issue during the trial was how to calculate the 'additional payment' under the secret agreement. Elliott argued, "According to the agreement, all amounts paid to other shareholders, including the principal difference and 6 to 7 years of delay interest, should be paid on the same basis." They particularly emphasized the phrase in the agreement covering 'compensation for all losses and costs.'

On September 1, the first trial court dismissed Elliott's claim, ruling that the 'per-share consideration' mentioned in the agreement referred only to the stock price itself and did not include delay interest.

The court stated, "The phrase 'per-share consideration or value transfer amount exceeding the presented price' in the agreement refers to the principal of the stock purchase price." It further explained, "While the starting point for calculating delay damages on the stock purchase price is the same, the end date for delay damages may differ among shareholders."

Additionally, the court added, "Ultimately, delay damages are a type of amount that is difficult to convert into 'per-share consideration.' The agreement does not include a definition or calculation method for converting delay damages into per-share consideration."

Meanwhile, last year, the National Pension Service filed a lawsuit demanding compensation for damages caused by the Samsung C&T and Cheil Industries merger against Samsung Electronics Chairman Lee Jae-yong, Samsung Group executives, Samsung C&T as a corporation, and seven others. The first trial procedure is about to begin. This case was filed as the statute of limitations (10 years) for the damage claim was approaching expiration.

At the time of the merger, the National Pension Service held 11.61% and 5.04% stakes in Samsung C&T and Cheil Industries, respectively, but the value of shares in the 'merged Samsung C&T' was found to have shrunk compared to the combined value of the two companies' shares. Although the lawsuit amount stated in the complaint is 510 million KRW, the claim could increase to several hundred billion KRW once the actual damages are specifically calculated. Both the National Pension Service and Chairman Lee's side have appointed legal teams and are preparing for the lawsuit, but the first hearing date has not yet been set.