Samsung C&T Approves 'Controversial' Merger With Chail: Here's What It Means

Samsung C&T (KRX:000830)shareholders finally approved, last Friday, the controversial merger with Cheil Industries Inc (KRX:028260). Following the vote, Citi analysts Sungmee Park and Dana Kang look into the companies and conclude that, while the transaction would be positive for Chail, valuations do not look attractive.

According to the firm’s 2015 estimates, the merger would generate EPS accretion of 79 percent for Chail, and offers an opportunity to deflate current net asset value premium “by acquiring Samsung C&T’s investment assets (including 4.1% stake in SEC) at a discount.”

On the other hand, Samsung C&T will see the merger lead to EPS dilution. However, on the bright side, “shareholders could now align with Lee family’s interest.”

“On a post-merger basis, the current share price translates into only 3% NAV discount,” the experts add. This suggests potential upside is already priced in the stock.

Park and Kang are also concerned about seeing disappointing earnings in the second quarter and a potential share overhang from the 40.3 million Samsung C&T shareholders (25.8 percent) who didn’t support the merger. Both these issues could further pressure the stock.

In addition, they explain, “if the FTC rule, that the newly formed circular holding needs to be resolved, SDI, SEMCO and SFM would be forced to sell their combined stake of 8.8% in the merged entity with in six months.”