Trial over 'Samsung Unfair Merger' Allegations... Disputes Continue over Corporate Value Assessment

'Merger Ratio Report Preparation' Begins Witness Examination of Former Anjin Accountant Kim

[Image source=Yonhap News]

[Asia Economy Reporter Kim Daehyun] Former employees of Deloitte Anjin Accounting Corporation have testified in the trial of Samsung Electronics Vice Chairman Lee Jae-yong, who was indicted on charges of 'unfair merger and accounting fraud,' regarding the process of preparing the 'merger ratio report' related to the merger between Samsung C&T and Cheil Industries.

On the 16th, the Criminal Division 25-2 of the Seoul Central District Court (Presiding Judges Park Jeong-je, Park Sa-rang, Kwon Seong-su) held a continuation hearing on charges against Vice Chairman Lee, including unfair trading under the Capital Markets Act, market manipulation, and breach of fiduciary duty. The witness Kim, who appeared on this day, worked at Anjin in May 2015 on tasks such as preparing reports related to the merger of Samsung C&T and Cheil Industries.

Witness: "The merger ratio was proceeded in a way to match as much as possible"

The prosecution views that the merger was conducted in a way favorable to Vice Chairman Lee, who was the largest shareholder of Cheil Industries but held no shares in Samsung C&T, and that this constitutes an 'illegal succession of management rights.' At the time of the 2015 merger, the merger ratio between Cheil Industries and Samsung C&T was 1 to 0.35, meaning Samsung C&T was valued at about one-third of Cheil Industries. Anticipating objections to the merger ratio, the prosecution believes external institutions like Anjin were commissioned to produce reports stating that "the merger ratio is appropriate."

Among Anjin employees at the time, emails circulated mentioning other companies' cases, expressing concerns that the external perspective might be negative. Kim said, "It meant that from the perspective of those shareholders, merging at a low stock price could be seen that way."

The prosecution believes Samsung pressured accountants to artificially manipulate corporate values to favor Vice Chairman Lee in the merger ratio. Kim’s superior, Mr. Oh, who previously testified as a witness, also stated that he understood Samsung C&T requested to align the merger ratios of both companies to ensure the merger proceeded smoothly.

It was understood that even within Anjin, opinions emerged that artificial adjustments might be necessary. When the prosecutor presented an email stating, "If there is no alternative, let's create a final conclusion that we can take responsibility for," a tense exchange occurred during the defense counsel’s attempt to challenge this.

Defense Counsel: (interrupting the prosecutor’s question) I believe the premise itself is wrong.

Prosecutor: (towards the bench) Please restrain this. What premise is wrong in this question? The court should properly judge this. Is it reasonable to keep interrupting our mere four hours of witness examination like this?

Defense Counsel: (cutting off the question) Please let me...

Prosecutor: I said I won’t do that!"

Regarding this, Kim testified that the intention was to create a conclusion that would allow the merger to proceed as much as possible within the scope of responsibility Anjin could bear if the appropriateness of the merger ratio could not be explained.

In particular, Kim reported on May 21, 2015, that "the merger ratio based on the stock price could not be matched," but after staying up all night on the same day, he eventually prepared a report stating that it "corresponds to the stock price ratio," explaining the circumstances by saying, "(Mr. Oh, who attended the meeting that day) said something along the lines of 'we have no choice but to proceed by matching as much as possible.'"

When asked by the prosecutor whether this was at the request of Mr. Kim from Samsung’s Future Strategy Office, Kim replied, "I did not hear any direct contact," but added, "I did not know the details, but I heard someone gave the order."

Defense Counsel: "Valuation itself involves much subjective judgment"... Full cross-examination to begin next week

On the other hand, Vice Chairman Lee’s defense argues that the merger of the two companies was a necessary managerial decision, not for Lee personally, and that there is no legal problem. They claim that Anjin’s final report was a conclusion based on the accountants’ own judgment and that there was no pressure from Samsung.

The defense’s cross-examination of Kim will intensify from the next trial session. On this day, the defense said, "It is necessary to confirm what experience or perception the witness has regarding valuation," adding, "Since time is limited, we will ask about specific evaluation processes at the next session."

Meanwhile, the defense introduced opinions from various experts to confirm the premise that "valuation itself inevitably involves subjective judgment." The defense presented a theory book by a domestic professor, stating, "Depending on the evaluator or data provider, views on the market and factors differ, and it is difficult to judge that a complete, objective, and unique value exists." They also added, "(Foreign) Professor A said that the models we use for valuation reflect bias and involve much subjective judgment."

Kim also answered "yes" when asked by the defense whether "estimated amounts vary depending on evaluation methods, assumptions, data, and evaluators." When asked, "Is it not a matter of absolute right or wrong if one accountant’s estimated amount differs from another’s?" Kim replied, "According to theory books, that is correct."

In response, the prosecution emphasized, "Considering the lengthy time, there is concern that the defense’s logic might be implanted in the witness in advance, intimidating the witness," and urged, "Please be careful."

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