Samsung C&T Corp. and Elliott Associates started their legal battle on Friday over the proposed merger between Samsung Group's construction and trading subsidiary and the US hedge fund.
In the first hearing at the Seoul Central District Court on two injunctions the fund company filed last month to block the merger plan, the two sides reiterated their positions.
Lawyers representing the US fund claimed that the proposed merger between Cheil Industries, a theme park operator and Samsung's de facto holding firm, and C&T is unlawful.
"There is no reason for Samsung C&T to merge with Cheil Industries as the results will bring no benefit to the firm itself, but only help the owner family strengthen their grip on Samsung affiliates," said an attorney from law firm Nexus, representing Elliott.
He also said the plan is designed to help the family that owns Samsung Group by giving it small portions of shares to tighten its grip on the conglomerate's flagship electronics business.
If the merger is completed as planned, Cheil Industries, whose largest shareholder is Samsung heir apparent Lee Jay-yong, will be able to take over Samsung C&T's 4.1 per cent share worth around 8 trillion won ($7.24 billion) in tech giant Samsung Electronics.
Another Nexus lawyer raised a question about the merger decision process, claiming that top executives from Samsung C&T said in April that they were not mulling the merger.
But Samsung's defence lawyers from law firm Kim & Chang shot back, calling the plaintiffs' arguments "groundless and completely based on assumptions."
"Samsung C&T valued itself based on its stock prices, which is required by the local laws," a defence lawyer for Samsung C&T said. He was counterattacking Elliott's claim that the deal is unfair because the terms of the takeover underestimated C&T's value while inflating that of Cheil.
"The proposed merger deal does not cause any damage to Samsung C&T, but is more beneficial (to the company and its shareholders) as seen in the changes of the Samsung C&T stock price after the announcement of the merger," he added.
The company's stock price surged by 15 per cent the day after the announcement.
Elliott had filed two court injunctions against Samsung C&T earlier this month to annihilate Cheil Industries' merger bid to take over Samsung C&T and to block Samsung C&T's attempts to sell its 8.99 million shares (5.76 per cent) to its longtime ally KCC, a construction materials developer.
The court ruling is expected to be made around July 1, or at least no later than a shareholders meeting.
The US hedge fund ― the third-largest shareholder of Samsung C&T with a 7.1 per cent share ― argued that Cheil Industries' takeover plan had caused damage to the Samsung C&T's shareholders as the builder was significantly undervalued.
The executive boards of Cheil Industries and Samsung C&T had agreed that each share of Samsung C&T would be exchanged for 0.35 share of Cheil Industries.
The sale of the shares to KCC, if made, is expected to give the construction materials firm a bigger voice in approving the merger plan at the shareholders meeting and consequently help Samsung win more support to complete the merger.