Trial of Lee Jae-yong Resumed After 5 Months...Prosecution: "Illegal Merger" vs Samsung: "Lawful Business Activity"

[Asia Economy Reporter Su-yeon Woo] In the trial over the Samsung C&T merger allegations involving Samsung Electronics Vice Chairman Lee Jae-yong, which resumed after five months, the prosecution and defense faced off fiercely. The prosecution argued that Vice Chairman Lee systematically manipulated the merger ratio of Samsung C&T to increase his control within the group, while Samsung's side countered that the merger was conducted through lawful procedures and was an inevitable choice to stabilize management control.

On the 11th, the Seoul Central District Court Criminal Division 25-2 (Presiding Judges Park Jeong-je, Park Sa-rang, Kwon Seong-su) held the second pretrial hearing for Vice Chairman Lee and Samsung Group officials, who were indicted on charges including violations of the Capital Markets and Financial Investment Business Act.

[Image source=Yonhap News]

◆ Prosecution: "Samsung C&T Merger Aimed at Succession of Management Rights"?On this day, the prosecution summarized the indictment and raised suspicions about the Samsung C&T merger process. First, the prosecution claimed that the merger ratio and timing were set in a way favorable to Vice Chairman Lee. They planned the merger by raising the stock price of Cheil Industries and lowering the stock price of the old Samsung C&T, executing the merger at the point that would maximize Lee’s control.

They also pointed out that concealing and failing to disclose facts that significantly affect stock prices or shareholders’ decisions constitutes a violation of the Capital Markets Act. Although Samsung Bioepis, a subsidiary of Cheil Industries, was effectively jointly controlled with Biogen, a joint venture partner, Samsung BioLogics falsely disclosed that it solely controlled Samsung Bioepis.

Furthermore, the prosecution raised suspicions that during the stock purchase request period after merger approval, the stock price of Cheil Industries was artificially manipulated. Due to concerns that the merger would collapse if the stock purchase request price exceeded 1.5 trillion won, they allegedly propped up Cheil Industries’ stock price above the purchase request price. They also pointed out that to boost Cheil Industries’ stock price, the process of Samsung Bioepis’s NASDAQ listing preparation was falsely promoted and stock prices were managed through treasury stock purchases.

The prosecution stated, "Vice Chairman Lee and the Mi-jun-shil ignored the interests of old Samsung C&T shareholders and decided on the merger. Regardless of Samsung C&T’s business needs, the merger was for Lee’s succession and strengthening control, and the timing was planned to favor him."

Lee Jae-yong, Vice Chairman of Samsung Electronics, attending the sentencing trial of the retrial for the state corruption case held at the Seoul High Court in Seocho-gu, Seoul, last January / Photo by Yonhap News

◆ Samsung: "All Merger Procedures Were Lawful... Prosecution’s Indictment Is Unreasonable"?Samsung’s defense team also refuted the prosecution’s charges point by point. Samsung said, "During the prosecution’s long investigation, employees of all affiliates underwent over 800 searches and investigations. The prosecution is conducting the investigation under the premise that all processes were illegal."

First, Samsung countered that the claim that the merger was executed at a time favorable to Vice Chairman Lee does not align with subsequent stock price trends. The prosecution compares the assets, sales, and operating profits of old Samsung C&T with Cheil Industries, defining Cheil Industries’ stock as overvalued and old Samsung C&T’s stock as undervalued, but Samsung argued that it is unreasonable to compare valuation based on performance between companies with different industries and business structures.

Samsung stated that if the merger had not occurred, the stock price of old Samsung C&T would likely have further declined due to the sluggish construction industry after the merger, and that the merger actually provided old Samsung C&T shareholders with an opportunity to share in the profits of the bio industry.

Regarding the external audit law violation issue and disclosure problems related to Samsung Bioepis, Samsung argued that these were conducted with lawful procedures and advice, so there is no problem. Samsung BioLogics held 85% of Samsung Bioepis’s shares, controlled four out of five board members, and led actual management activities.

Samsung also mentioned that the NASDAQ listing of Bioepis had been steadily discussed with Biogen since 2014, with practical steps such as a kickoff meeting between working-level staff in August 2015, indicating that the prosecution’s claim of false disclosure is far from the truth.

Regarding treasury stock purchases during the stock purchase request period after the merger, Samsung dismissed the claim, stating that the merger’s success was a joint benefit for both Cheil Industries and old Samsung C&T shareholders and was a management decision. Finally, the defense emphasized, "In the upcoming trial process, the defendant will present their position as an equal party and clarify the prosecution’s excesses and the defendant’s innocence."

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