Lee Jae-yong's Fateful Friday, Business Circles Say "Prosecutor's Indictment Grounds Ignore Capital Market Principles"

Vice Chairman Lee Jae-yong's 'Fateful Friday'... Eyes on the Prosecutorial Review Committee to Decide Indictment
"Price Manipulation in Samsung C&T-Cheil Industries Merger Process, Practically Impossible"

[Asia Economy Reporter Changhwan Lee] As the Prosecutorial Investigation Deliberation Committee (PIDC), which will discuss whether to indict Samsung Electronics Vice Chairman Lee Jae-yong on allegations of illegal succession of management rights, approaches in three days, the business community is pointing out that the suspicions raised by the prosecution ignore the principles of the capital market.

According to the legal community on the 23rd, the PIDC under the Supreme Prosecutors' Office will convene a special committee on the 26th to hold a deliberation session on whether to file charges against Vice Chairman Lee and others.

One of the key issues to be deliberated by the PIDC is the allegation that Vice Chairman Lee and Samsung manipulated the merger ratio through market price manipulation during the merger process of Samsung C&T and Cheil Industries. It is claimed that Lee deliberately adjusted the market price to facilitate succession of management rights, thereby distorting the merger ratio.

The prosecution is understood to argue the necessity of indictment based on suspicions such as "the merger was unfair because Samsung C&T was undervalued and Cheil Industries was overvalued at the time of the merger" and "market prices were manipulated by lowering Samsung C&T's stock price and boosting Cheil Industries' stock price."

At the end of May 2015, just before the announcement of the merger between Samsung C&T and Cheil Industries, Cheil Industries' market capitalization was 25 trillion won, and Samsung C&T's market capitalization was 8.6 trillion won, resulting in a merger ratio of 1 to 0.35 according to the Capital Market Act.

At that time, some Samsung C&T shareholders, including Elliott, raised concerns that this ratio was favorable to Vice Chairman Lee, the major shareholder of Cheil Industries, and unfavorable to Samsung C&T. After the merger announcement, issues also arose alleging that Samsung manipulated stock prices through market price manipulation.

However, such allegations are being criticized across the business community for ignoring the fundamental principle of the capital market that it is impossible to predict future stock price trends.

An official from the business community pointed out, "The premise that Samsung could have chosen the stock prices most unfavorable to Samsung C&T and most favorable to Cheil Industries in a stock market where not even an inch ahead can be predicted is impossible."

The prosecution particularly suspects that Samsung manipulated market prices by intensively announcing favorable information around the time of the resolution of the merger between Samsung C&T and Cheil Industries. For example, the order for the Qatar combined cycle power plant construction announced by Samsung C&T on July 28, 2015, is representative.

Although the order was actually placed two months earlier in early May, it is suspected that the announcement was made at the end of July to boost the stock price and facilitate the merger. However, it was confirmed that what Samsung received in May of that year was not the order contract but a Limited Notice to Proceed (LNTP) for the construction.

Since this is not the main contract, there is a risk of cancellation at any time. It is generally not disclosed, and rather, if it is disclosed as if it were a main contract order, there is a concern of false disclosure, according to industry evaluations.

Regarding claims that there were circumstances of Samsung's "stock price defense" during the stock purchase request period ahead of the Samsung C&T and Cheil Industries merger, criticism has also emerged that the company has never made illegal attempts to protect the stock price and that these claims are baselessly being portrayed as illegal.

Voices also say that the claim that the National Pension Service suffered losses of several hundred billion won by supporting the "unfair merger ratio" is unfounded. At that time, the National Pension Service held similar amounts of both Samsung C&T and Cheil Industries stocks, so the scale of investment loss for the National Pension Service does not change according to the merger ratio, according to the business community.

An official from an economic organization said, "The prosecution raises various illegal suspicions regarding the merger of Samsung C&T and Cheil Industries, but most of them lack evidence," adding, "I expect these issues to be the focus of discussion at this week's PIDC."

This content was produced with the assistance of AI translation services.