Samsung Heavy Industries called off a merger with Samsung Engineering that would have helped them compete better against European rivals.
The worlds third-largest ship builder scrapped a merger with Samsungs engineering unit, due to requests of share buybacks from investors. Under South Korean regulations, a merger could be canceled by a company should the requested buybacks reach a level that could increase its financial burden.
Samsungs heavy unit said in September that would acquire the groups engineering unit by releasing 2.36 new shares for each Samsung Engineerings stock. As a part of the deal, shareholders in both companies could choose to the sell their shares back to the companies. The agreement was valued at ₩2.5 trillion.
On Monday the total of the requested buybacks amounted to ₩1.6 trillion, Samsung Heavy said in a statement, pointing out that the number was too big for the companies to cope with. In September Samsung Heavy and Engineering said they will scrap the merger if cost of share buybacks exceed ₩950 billion and ₩410 billion respectively.
“Going ahead with the merger would have been a big burden on the financials of the combined company” the two companies said in a joint statement. “This would have eventually undermined shareholder value. However, we will continue to work closely together to create more synergies in the offshore oil and gas market.”
The main idea behind the merger was to combine Samsung Heavy’s offshore expertise and the project management of Samsung Engineering in order to reduce the risk of costs overrun.
However, investors in Samsung Heavy were unhappy with the merger with a struggling business, the engineering company reported sizable losses in recent years as it faced increased competition.
South Koreas National Pension Service, a major investor in most of the countrys big companies, also said it was against the agreement.
WC Chung, an analyst at Mirae Asset Securities, said the deal originally offered “limited synergy possibilities in the short-to-mid term.”
Samsung group have put an extra effort in simplifying its complex ownership structure, as Lee Kun-hee passes leadership to his three children. However, the axing of the merger may affect the planned restructuring.
Samsung Heavy Industries fell 6.39% on Thursday and closed at ₩23 450 on the KSE. The company is valued at ₩5.09 trillion. The companys stock fell 19% since the merger announcement. Samsung Engineering dropped 9.31% on Thursday and closed at ₩53 600. The company is valued at ₩1.98 trillion. The companys shares fell 26% since the merger announcement.
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