US hedge fund Elliott Associates criticises $8bn merger of Samsung affiliates

US hedge fund Elliott Associates is targeting to block the merger between two key affiliates of South Korean conglomerate Samsung, as the fund criticised the deal as unfair.

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.

The proposed merger "significantly undervalues Samsung C&T and ... the terms are neither fair to nor in the best interests of Samsung C&T's shareholders", according to Elliott, which currently has a 7.1% stake in the construction company.

Elliott's opposition is likely to increase pressure on Cheil Industries to increase its offer for Samsung C&T. Following criticism from the hedge fund, Samsung C&T shares jumped as much as 13% in South Korea.

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.

Jay Y Lee and members of his family directly own 42% of Cheil Industries, while Samsung affiliate companies own about 30% of the company.

Nevertheless, 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.