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By Hyunjoo Jin
SEOUL (Reuters) - Investors are challenging the unilateral decisions made by South Korea's biggest family-run firms, putting pressure on the chaebols that form the backbone of Asia's fourth-largest economy to take their interests into consideration.
This week, investor backlash led Samsung Heavy Industries and Samsung Engineering, affiliates of Samsung Group, to abandon a $2.5 billion (1.60 billion pound) merger. Investor anger at a $10 billion property purchase by a consortium led by Hyundai Motor also triggered a rare share buyback by the automaker and its affiliate Kia Motors this month.
Investors have long complained that chaebols often put the interests of their founding families, who only hold small stakes in affiliates, before their own. Now these majority shareholders are fighting back.
"Korean chaebols haven't been very sensitive to shareholders but they are learning the hard way," said Kim Sang-jo, head of activist group Solidarity for Economic Reform that uses its minority stakes in major firms to push for better governance.
"They were confident they could do things their way but now they have to be more cautious," he told Reuters.
The chaebols' apparent disregard for shareholder value is among the reasons Seoul-listed stocks trade at a discount to peers abroad, and investors are fed up, analysts say.
In the case of the Samsung units, shareholders said they saw little value in the deal. Analysts said the merger was aimed at streamlining Samsung Group to make it easier for the heirs of ailing and elderly chief Lee Kun-hee to split the business.
"Korean chaebols should put themselves in the shoes of shareholders," said Park Yoo-kyung, a director for Netherlands-based APG Asset Management which owns shares in Samsung units. "They can't sacrifice investors for the sake of the deal."
Hyundai Motor Group recently faced similar investor backlash after affiliates bid three times the appraised price for a Seoul property to house its headquarters. After their stocks plunged, Hyundai and Kia announced buybacks.
As shareholders become more bold in pursuing value, chaebols will have to pay them more attention.
"The scrapping of the Samsung merger will be a good reference for controlling shareholders when they make decisions," said a Seoul-based fund manager who declined to be identified as he is not authorised to speak to the media.
(Additional reporting by Joyce Lee; Editing by Miral Fahmy)