Tribunal partially accepts Elliott’s claims over Samsung merger

The International Center for Settlement of Investment Disputes (ICSID) on Tuesday ruled in favor of US-based hedge fund Elliott Investment Management Corp. in a suit they filed against the South Korean government five years ago.

The tribunal, however, has partially accepted Elliott’s claims, ordering the Korean government to pay only a fraction of the US hedge fund’s compensation requests.

The ruling puts an end to years of dispute surrounding a controversial merger of two units of Samsung Group, Korea’s largest conglomerate.

The tribunal’s arbitration panel said the Korean government must pay Elliott $53.6 million in compensation, Korea’s Ministry of Justice said. The compensation represents about 7% of Elliott’s original request of $770 million.

The panel also ordered Seoul to pay an accrued 5% compound interest on the compensation over the past five years.

Separately, the tribunal ordered Elliott to pay the Korean government $3.46 million in legal costs, while the government must pay $28.9 million to the US fund in legal costs.

The Korean government estimates the total amount it must pay to Elliott at around 130 billion won ($101 million).

The investor-state dispute settlement (ISDS) case dates back to 2018 when Elliott launched a complaint against the Korean government to claim $770 million in compensation.

Elliott has sought compensation from the government, arguing that it suffered investment losses because of the government’s intervention in the 2015 merger of two Samsung units – Samsung C&T Corp. and Cheil Industries Inc. The US fund opposed the merger but failed to block it.

‘UNFAIR’ GOVERNMENT INTERVENTION

At the time, Elliott claimed that it suffered losses due to “unfair” mediation by the Korean government in the process of approving the merger between the two Samsung Group units.

Elliott, which held a 7.12% stake in Samsung C&T, opposed the merger, saying the proposed merger ratio of 0.35 share of Cheil per Samsung C&T stock was unfair to Samsung C&T shareholders

Elliott said the deal would significantly hurt Samsung C&T’s shareholder interest. But the merger was approved at a shareholder meeting, backed by the state-run National Pension Service’s swing vote in Samsung’s favor.

The US hedge fund said the Korean government exerted pressure on the state pension fund – a claim the fund’s operator, the Ministry of Health and Welfare denied.

The ICSID, which formed an arbitration panel on the dispute in November 2018, arranged written arguments from both sides between April 2019 and November 2020.

In November 2021, the arbitrator held oral hearings in Geneva, Switzerland.

Write to Jin-Seong Kim and Yong-Hoon Kwon at Jskim1028@hankyung.com

In-Soo Nam edited this article.