Macroscope | A win for Samsung’s ruling family is South Korea’s loss

Long before the South Korean media began indulging in anti-Semitism, Samsung’s recent effort to pull a fast one on its own investors was already firmly in insult territory. The company’s affront extended both to shareholders and to the South Korean public.

The bid by Samsung’s de facto holding company, Cheil Industries, to buy Samsung C&T at a laughably below-market price was a naked power grab by the company’s founding Lee family. But Samsung so dominates South Korea that it managed on Friday to convince the subsidiary’s shareholders to ignore their own interests.

The merger marks a defeat for South Korean President Park Geun-hye, who won office in late 2012 with promises to rein in the family-owned companies that stifle South Korean innovation. Friday’s vote was Park’s economic Waterloo, the moment her government decisively lost the fight against the oligarchs.

It’s also a defeat for activist investor Paul Elliott Singer. Last month, Singer began publicising his 7.12 per cent stake in Samsung C&T, the group’s construction subsidiary, in order to block Samsung Group’s proposed deal. Foreign hedge funds are always controversial in South Korea, where they’re often derided as “vultures” and “parasites” picking at the nation’s hard work for a quick profit. But Singer was confronted with particularly nasty attacks from Samsung’s sympathisers; media reports referred to him as the face of the “Jews of Wall Street” and their “ruthless and merciless” ways.

The attacks harkened back to 1997, when then-Malaysian prime minister Mahathir Mohamad blamed a shadowy Jewish cabal led by George Soros for crashing his economy. In its dealings with international investors, Malaysia is still trying to move beyond the ugliness of that moment. Unless Samsung heir-apparent Lee Jae-yong and President Park condemn the attacks on Singer, corporate South Korea won’t easily move on from this episode, either.

To be sure, Singer, like every hedge fund manager, was motivated by profit not altruism. But his critical assessment of Samsung’s cosy merger was spot-on.

Now that it’s likely to go through, the deal will embolden South Korea’s other family conglomerates – known as chaebol – to act even more selfishly than they do already. It’s also sure to perpetuate the so-called “Korea discount”, which depresses stock valuations relative to developed-market peers. That’s the price for the sort of dodgy corporate governance regularly displayed by Samsung, Hyundai and other South Korean companies.