The Legal Team of Lee Jae-yong Refuted Point by Point... What Are the 3 Key Issues in the 'Merger Suspicion' Trial?

Preparation Hearing on Samsung C&T Merger Allegations on the 11th
Prosecutors: "Merger Timing and Ratio Favor the Owner" vs Samsung: "Simple Comparison with Other Industries Not Possible"
Issues with Biologics Accounting and Disclosure
Controversy Over Cheil Industries' Treasury Stock Buyback

[Asia Economy Reporter Su-yeon Woo] In the retrial of the ‘Samsung C&T merger allegations’ resumed after five months, Samsung Group Vice Chairman Lee Jae-yong’s side has completely denied the charges and systematically rebutted the prosecution’s allegations.

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. Although the day was scheduled for coordinating the overall trial schedule, the confrontation between both sides was fiercer than in the formal trial.

The prosecution and Samsung engaged in a sharp legal dispute over whether the series of actions related to the Samsung C&T-Cheil Industries merger could be subject to charges under the Capital Markets Act.

Samsung Electronics Vice Chairman Lee Jae-yong is attending the retrial sentencing hearing of the state affairs manipulation case held at the Seoul High Court in Seocho-gu, Seoul, last January. Photo by Yonhap News

First, the prosecution claimed that Samsung adjusted the merger ratio and timing in a way favorable to Vice Chairman Lee. They argued that the merger was executed at a time when the stock price of Cheil Industries, in which Lee held a high stake, was elevated, and the stock price of the old Samsung C&T was lowered, maximizing the controlling shareholder’s influence.

On the other hand, the defense team countered that the prosecution conducted the investigation based on the premise that all processes were illegal and forced an unreasonable indictment. They particularly pointed out the contradiction in comparing the stock prices of Cheil Industries and old Samsung C&T to discuss overvaluation and undervaluation.

They explained that it is unreasonable to evaluate the value based on the performance of two companies in different industries, and that the old Samsung C&T, which was construction-based, faced a sluggish market, making it unlikely that delaying the merger timing would result in a merger ratio favorable to old Samsung C&T shareholders. Rather, they argued that after the merger, the stock price rose, benefiting old Samsung C&T shareholders and providing an opportunity to share in the profits of the bio industry.

Samsung also dismissed the prosecution’s claim that it engaged in accounting fraud and false disclosure to boost Cheil Industries’ stock price at the time of the merger. The Samsung BioLogics accounting issue is a highly contentious area with divided expert opinions, and regarding the controversial control over Samsung Bioepis, Samsung asserted that it held actual control with an 85% stake and four out of five board members. They also mentioned that the Nasdaq listing attempt of Bioepis, which the prosecution identified as false, was actually pursued, with discussions with Biogen starting in 2014 and a kickoff meeting held by working-level staff in August 2015.

Furthermore, regarding the allegation of market manipulation through Cheil Industries’ share buyback after the merger decision, Samsung argued that it was a legitimate business procedure to ensure the merger’s success. The prosecution claimed that Samsung artificially inflated Cheil Industries’ stock price to prevent the exercise of stock redemption rights, fearing that if the exercise amount exceeded 1.5 trillion won, the merger would collapse.

Samsung explained that the merger’s success was a joint benefit for shareholders of both companies, and the decision to repurchase shares was a business judgment. They also argued that all matters related to the scale, timing, and method of the share buyback were announced in advance and conducted through strict procedures, making it unreasonable to view it as market manipulation.

Finally, Samsung’s defense emphasized that this case was an unreasonable prosecution by the prosecution, carried out despite two rejections of arrest warrants and a non-prosecution decision by the investigation review committee.

Meanwhile, the court set the first formal trial with the attendance of Vice Chairman Lee and other defendants for the 25th. The trial will proceed biweekly until May and weekly from June onward.

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