Seven days before the vote.
South Korea is home to the third-largest pension fund in the world, the
National Pension Service (NPS), tasked with overseeing the retirement
savings of the South Korean people. The fund had about $450 billion in
assets. The retirement body also happened to have the single largest stake
of Samsung C&T stock, at almost 10 percent. It also had 5 percent
ownership in the other Samsung company acquiring Samsung C&T, Cheil.
South Korea, with its aging population, depended on the integrity of the
pension service and its myriad investments in companies like Samsung. It
needed good returns to sustain its retirement payouts. Was it willing to risk
taking the hit for Samsung’s ruling family?
On July 10, in a closely followed saga, the National Pension Service’s
investment committee convened in secret to cast its vote on the merger,
which would then be delivered at the shareholder meeting a week later.
“Pension Fund Could Be Samsung Kingmaker,” read a headline in The Wall
Street Journal.
To the consternation of media and shareholders, the pension fund
passed on the option of consulting an outside panel of experts and
academics. Consulting with an outside committee was the usual practice in
weighing controversial shareholding votes. “The NPS is shooting
themselves in the leg and trashing their reputation,” Kim Woo-chan, a
former NPS committee member, told me about the decision.
The NPS’s internal estimates showed that it stood to lose $120 million
should the merger go through. During many hours of deliberations, the
pension service’s executives debated the merits of the merger. Its decision
makers acknowledged the impending losses for the retirement service as a
result of Samsung’s actions.
“Our stake in Cheil Industries can’t cover all the losses from C&T,” said
Lee Soo-cheol, head of investment strategy, according to minutes leaked to
me later. “There needs to be enough synergy to make up the difference.”
The head of research went so far as to propose an investment in another
Samsung company to offset the impending losses.
“In order to counterbalance the disadvantageous merger ratio,” he said,
according to the minutes, “there needs to be approximately a 6 percent (2
trillion won) increase in enterprise value....We may be optimistic about
increased enterprise value through the profit created by new growth
businesses like Samsung BioLogics.” But the pension service never ended