samsung logo
Elliott Associates is targeting to block the merger between two key affiliates of South Korean conglomerate SamsungReuters

US hedge fund Elliott Associates said it has commenced legal proceedings to block the merger between two key affiliates of South Korean conglomerate Samsung.

Construction company Samsung C&T earlier agreed to be taken over by Cheil Industries, in which Samsung Electronics vice-chairman and heir apparent Lee Jae-yong is the major shareholder. As per the deal, each Samsung C&T share will be exchanged for 0.35 of a share in Cheil Industries, valuing the acquisition target at more than $8bn (£5.2bn, €7.3bn).

The merger is widely seen as the family's attempt to ensure control of the group, ahead of an expected leadership succession. The group's chairman Lee Kun-hee has been bedridden following a heart attack in May 2014.

Elliott, which recently increased its stake in Samsung C&T to 7.1%, earlier criticised the deal, saying it is not in the best interest of Samsung C&T shareholders.

"Elliott continues to believe that the proposed takeover is clearly neither fair to nor in the best interests of Samsung C&T's shareholders, and that it is unlawful," the fund said in a statement.

"Elliott has therefore taken the step today of commencing legal proceedings for an injunction against Samsung C&T and its directors in order to seek to prevent the proposed takeover from going ahead and thereby protect the interests of Samsung C&T's shareholders."

The deal is subject to the approval of shareholders in both the companies. They will vote on the proposal on 17 July, and a two-thirds majority is required to approve the deal.

The Lee family owns just 1.4% of Samsung C&T, and the total holding will be less than 20%, if shares of affiliates and related parties are taken into account, according to brokerage CLSA.