South Korea's Samsung Heavy Industries Co. Ltd. has abandoned its W2.5 trillion ($2.25 billion) takeover of sister company Samsung Engineering Co. Ltd. after shareholders opted to sell stock back to the companies rather than participate in the all-share deal.
The companies said on Wednesday, Nov. 19, they had been forced to abandon the deal after shareholders with W1.63 trillion of stock indicated they would take up a repurchase option if the merger proceeded.
"Going ahead with the merger would have been a big burden on the financials of the combined company," Samsung Heavy and Samsung Engineering said in a statement. "This would have eventually undermined shareholder value."
The scrapping of the deal is a blow to Samsung Group's plans to restructure its sprawling operations ahead of the possible transfer of power from long-time head Lee Kun-hee to his family. That succession is seen likely to trigger a breakup of the group, which has also found itself under pressure from a government initiative to dismantle the conglomerates, known as chaebols, that dominate South Korea's economy.
Samsung Heavy on Sept. 1 said it would offer 2.36 new shares for each Samsung Engineering share. The two groups claimed the deal would provide Samsung Heavy, the world's No. 2 ship builder, with engineering talent to expand its offshore energy business and extend Samsung Engineering operations into the gas and oil sector.
The deal encountered trouble within a week of that announcement, as the would-be partners' share prices slipped below the price at which they were offering to repurchase stock. Samsung Heavy had offered to purchase its shares at W27,003 per share, while Samsung Engineering had offered W65,349.
The merger agreement included the option to abandon the deal if the cost of repurchasing shares topped W950 billion for Samsung Heavy or W410 billion for Samsung Engineering.
Samsung Heavy shares closed Wednesday at W23,450, down W1,600 or 6.4% on their Tuesday close. Samsung Engineering shares closed at W53,600, down W5,500, or 9.3%.