The hedge fund billionaire at war with Argentina is taking on the Samsung family dynasty

Paul SingerWikimediaPaul Singer, founder and CEO of Elliott Management.

Hedge fund billionaire Paul Singer is known for pursuing his investments to the ends of the earth.

Literally. Once, in an effort to squeeze money from the Argentine government, he got a Ghanaian Court to impound one of the The Republic’s naval vessels. It took months and a United Nations Court to get it, and its crew of 200 sailors. back to Argentina.

So as you can see Singer does not play around.

And since the beginning of June he has decided that he will no longer play nice with one of the richest families on the planet — South Korea’s Lee family — the family that, through its massive Samsung empire, controls 17% of their native country’s economy.

Somebody get me some popcorn. This is going to be fun to watch.

What the fight is all about

Here’s the deal. For three generations the Lee family has built a sprawling $US270 billion empire of companies — not just electronics-maker Samsung. Its affiliate, holding company Cheil Industries, contains within it a bunch of businesses raging from textiles to entertainment.

In South Korea this structure is known as a chaebol. It is a complex way of putting together a vast network under one main leader of one powerful family.

Now, maintaining this over generations hasn’t always been easy. The Lees have gone through their ups and downs — corruptions scandals, backstabbing, succession issues. What’s happening now is a transition to a new generation and new leader, Lee Jae-yong. He must take the place of Lee Kun-hee, the 110th richest man on the planet according to Forbes

To do that, and to keep Lee Jae-yong’s two two very powerful sisters and an older generation of aunts and uncles to happy — the Lees want Cheil Industries to purchase Samsung.

For Paul Singer, who owns 7% of Samsung, there’s really only one problem with that — the Lee’s $US9 billion offer price “significantly under-values” the company.

Remember, the Lees are not necessarily doing this for money. They’re doing it for peace.

Samsung lee jae-youngPaul SakumaSamsung Electronics Co. Chief Operating Officer Lee Jae-yong arrives at the Allen and Company Sun Valley Conference.

The first gauntlet (lawsuit) has been thrown

Singer, though, is not known for peace. He’s riled up other investors. The Lees have also rallied their allies, one being the Hyundai family conglomerate. The Lees tried to sell the Hyundai’s construction firm, KCC, 8.9 million treasury shares in the company in order to get the votes to push through their merger — a move Singer is trying to block.

“The board’s decision to sell the treasury shares is to achieve diversification and synergy through the merger, protect the company and shareholders from hedge funds who seek short-term profits and secure funds to improve the company’s financials,” Samsung C&T said in a statement.

Singer did not like that. His allies did not either. So now Elliott is suing Samsung over the sale.

Lee Samsung daughter


The Lees don’t play either

That was last week. On Monday rumours started flying in the South Korean press that the Lees were giving up. The source of that rumour may have been a report by analyst Kim Chul-Bum of Hanwha Investment & Securities.

“In the present situation, Samsung has only a 19.8 per cent stake, which appears to be favourable to the group, while Elliott Management, which holds a 7.1 per cent stake, has an additional 26.7 per cent stake from foreign investors who appear to be favourable to the company. So, it will be not easy for Samsung to win the majority of votes.”

To that, the Lees merely laughed.

“The hypothesis that the group will give up on the merger due to huge litigation costs has made something that never happened into fact. It is a groundless rumour that incites anxiety in the market,” said a Samsung official.

Think about it: This is a family whose scion, Lee Kun-hee, admitted to having a $US200 million slush fund on hand for the sole purpose of paying off politicians and judges in 2008. He also pleaded guilty to embezzlement and tax evasion. He was then was pardoned by the President of South Korea and returned as chairman of Samsung in a year.

Do you think they’re really going to let one American billionaire push them around?

Like I said, pop the popcorn.

Samsung chairman Lee Kun HeeREUTERS/Steve MarcusLee Kun-hee with with daughter Lee Pu-jin, president and CEO of family-owned Hotel Shilla.

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