From Breakingviews - South Korea’s rematch with Elliott is a lose-lose
and Chiel Industries. The U.S. fund argued the terms were unfair to minority shareholders; Elliott held roughly 7% of C&T but narrowly lost a bitter campaign – in which the Korean company resorted to handing out watermelons to shareholders - to stop the deal. A corruption scandal later revealed illicit backdoor dealings between Samsung scion Jay Y.
South Korea’s successful prosecution of Lee, Park and a former minister that oversaw NPS, provided cause for Elliott to demand payback. The fund claimed the merger left it with an overall trading loss of some $46 million; it also said the deal resulted in $842 million of lost intrinsic value on its C&T stake. Elliott sued in 2018 and the Permanent Court of Arbitration in the Hague in June awarded the U.S. fund over $100 million.
Elliott tapped a common provision found in bilateral trade agreements promising foreign investors fair and equitable treatment. Not only is the track record of fighting such penalties on the international stage mixed, Seoul is making a dubious assertion. It insists the NPS is not a state institution under Korean law and therefore its actions fall outside the reach of the U.S.-Korea Free Trade Agreement.
South Korea has much to lose if the appeal fails. It will have to pay more to Elliott in interest and legal fees, and these costs will ultimately be borne by taxpayers. That has sparked a nationalon whether Samsung should foot at least part of the bill. There is also reputational damage to consider. Yoon played a key role in prosecuting government officials and Samsung executives in the aftermath of the corruption scandal.
Yet conceding defeat will also be expensive. As of May, the NPS holds some 145 trillion won worth of domestic equities, or nearly 6% of the total market capitalisation of South Korea's listed firms, data from the stock exchange operators shows. Acknowledging the government is responsible for the fund's actions might pave the way for more legal attacks.
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