SEOUL (Reuters) - Samsung Heavy Industries said on Wednesday it has decided to scrap a US$2.5 billion stock deal to take over Samsung Engineering, potentially complicating restructuring plans by parent Samsung Group ahead of a looming succession.
Shareholders doubting the synergies of the merger had asked the two companies to buy back their stock for a higher-than-budgeted US$1.5 billion. This led the deal to unravel, both companies said in regulatory filings.
Analysts said this shareholder dissent could signal more trouble for Samsung Group as it moves to restructure its affiliates in preparation for a transfer of power from its ailing and elderly chief Lee Kun-hee to his three children. Lee has been hospitalised since May.
"Today's move should sound the alarm on Samsung's restructuring, which has been carried out unilaterally," said Chung Sun-sup, CEO of research firm Chaebul.com. "It signals shareholders could put brakes on restructuring moves if they go against their interests."
Ship builder Samsung Heavy had in September proposed the takeover of engineering and construction firm Samsung Engineering through to enable both companies to better compete abroad.
But shares in both companies had plunged since then, as shareholders saw little short-term benefit in the deal, saying Samsung Engineering's expertise in onshore plants is unlikely to be quickly transferred to offshore facilities. South Korea's National Pension Service, a shareholder which opposed the deal, had also asked for share buy backs, citing the stock price falls.
The two companies had said they could cancel the merger if the buy back, or cash tender offer, costs exceeded 410 billion won for Samsung Engineering or 950 billion won for Samsung Heavy. According to Wednesday's filing, Samsung Engineering shareholders wanted to sell shares worth 706.3 billion won while Samsung Heavy shareholders wanted a buyback of 923.5 billion won.
The companies said the "excessive buyback burden" could deteriorate the finances of the merged firm.
Shares in Samsung Engineering fell 8.6 per cent on Wednesday to 53,900 won, below cash tender offer price of 65,439 won, as some investors see dim chance of the collapsed deal revived.
Samsung Heavy stock also lost 6.4 per cent to below the cash tender offer price of 27,003 won.