Samsung, Harman merger review in Korea unlikely to be affected by ongoing graft probe into Samsung executives

23 January 2017. By Danbee Lee.

The review by the Korea Fair Trade Commission, or KFTC, of Samsung Electronic’s proposed acquisition of US auto-parts supplier Harman is unlikely to be affected by the recent corruption investigation into the firm’s executives, despite concerns about such a fallout, MLex was told.

In recent months, there have been some concerns that the corruption probe into Samsung heir Lee Jae-yong and other company executives could potentially influence the KFTC’s merger review process. Some have pointed out that the chance of Lee being detained, as well as the possibility that Samsung might become the target of a US probe under the Foreign Corruption Practices Act, or FCPA, could hinder the deal. Lee has been linked to a nationwide corruption scandal involving President Park Geun-hye and allegations of bribery. South Korea’s special investigative team, which is in charge of the probe into the scandal, had requested an arrest warrant for Lee on charges of both promising and offering bribes worth 43 billion won ($36.3 million) in total.

Last week, the Seoul Central District Court rejected the request. Local media reported that this came as good news for Samsung, because the company will be able to continue its operations and plans for overseas expansion without its top executive being absent.

The request for an arrest warrant came only a few months after Samsung announced its plans to acquire Harman last November. The proposed deal had been seen as a move by the South Korean tech giant to boost its presence in the market for connected technologies, particularly automotive electronics, which has been a strategic priority for the firm. The deal, valued at $8 billion, is considered to be the largest acquisition of a foreign company by a South Korean firm.

An application for a merger review was filed to the KFTC in December. Based on the KFTC’s general review process, the first phase lasts 30 days and the second phase starts with a 90-day extension. However, transition from phase one to phase two in South Korea does not necessarily mean there are competition concerns, unlike in other jurisdictions.

Still, uncertainties exist. Lee continues to face trial, and if he is convicted, there is a chance that Samsung could be investigated by US authorities under the FCPA. Also, Harman’s US-based shareholders filed a class action suit earlier this month against the firm’s chief executive officer and the board on the grounds that the deal undervalued the auto-parts maker and would cause damage to shareholders. A shareholders’ meeting to vote on the deal is expected to take place during the first quarter, with reports that a majority of shareholders are favorable toward the deal.

Despite these uncertainties, MLex was told they would not play a role in the KFTC’s review process. The deal received clearance in the US in December. It is also subject to antitrust clearance in China.

	Eliot Gao