With Samsung chairman Lee Senior on his deathbed, the family wanted Lee Junior to take the reins. To ensure that he does, Samsung may have paid Choi Soon-Sil’s foundations and given Choi’s daughter a ‘gift horse.’ President Park, in turn, may have pressured a pension fund to approve a merger between 2 Samsung subsidiaries. We provide an in-depth analysis of how and why this merger was absolutely necessary for the Samsung scion, who happens to be Lee Senior’s only son. Clearing the way for Junior to be at the helm required some juggling of family ownership stakes in related entities. If the charges are true, Samsung may have been a partner in crime, a co-conspirator who tried to bribe the sitting president.
How did Samsung get embroiled in the Choi Soon-Sil gate? Everyone knows about Samsung. It is one of Korea’s mega-companies often referred to as “chaebols.” But Samsung isn’t just any chaebol. Its annual revenues account for 20% of South Korea’s GDP and a quarter of total exports. South Korea, in fact, is often referred to as the “Republic of Samsung.” If Samsung were a country, it would be the 35th largest economy based on GDP.
Well, it turns out, Samsung desperately needed something from the government. It was probably interested in doing the bidding of anyone who had access to power in the Park administration. For Samsung, Choi Soon-Sil may have been a happenstance, as it may have sought government intervention for an urgent internal matter. Choi may not have had to look far in finding a partner in crime.
Samsung chairman Lee Senior is in a coma; his only son, Lee Junior, wants to take over when he expires. Youtube screen capture.
By this time, most people know how Choi Soon-Sil operated. She extorted payments from corporations by calling them “donations” to her 2 foundations. The payments were then diverted to Choi’s shell companies in Europe. To get her hands on them for personal use, she had to launder the payments through layers of holding companies and fake bank accounts.
Samsung gave the most money to Choi – anywhere from $20 to $40 million. And here’s the reason why. The company was embroiled in a dispute with its shareholders. The dispute had to do with a proposed merger of its two subsidiaries, Samsung C&T and Cheil Industries. The merger was the Lee family’s idea to raise their overall ownership stake in Samsung: the family owned a larger stake in Cheil so it was in their interest to acquire Samsung C&T cheaply. In fact, the stock deal gave almost zero value to Samsung C&T’s operating business and only some value to its holdings and assets. Therefore, some of Samsung C&T’s shareholders opposed the merger. This led to a proxy fight where votes were cast for or against the merger.
The Lee family wanted to combine Cheil with Samsung C&T to maximize their ownership stake in the overall company. Youtube screen capture.
Lee Jae-Yong (48) is the grand son of Samsung’s founder and the only son of Lee Kun-Hee (74), who’s been chairman since 1987. The elder Lee suffered a heart attack in 2014 and is now reportedly in a coma. He may be alive but is a vegetable. The Lee family wants Lee Junior to take over eventually but outside shareholders regard him as a hand-picked successor with no proven track record. The Lees wanted to keep it in the family. Therefore, raising the family’s overall ownership stake in Samsung would ensure that the company is “family-run.”
Well, the largest shareholder of Samsung C&T happened to be the National Pension Service (NPS), Korea’s largest pension fund. At the time, the NPS owned 10.2% of Samsung C&T. The NPS reports to the Ministry of Health and Welfare, a government agency susceptible to influence by the ruling administration. As you can see, the NPS’s support was crucial for the merger, which some shareholders, especially Elliott Associates, strongly opposed because Samsung C&T was priced too low. Would the NPS support the merger when its holding was being undervalued?
Was it 'rote patriotism' or something else entirely that made the NPS to vote in favor of the merger? Youtube screen capture.
The NPS did vote for the merger in a close vote. The tally was 69.2% in favor. Had the NPS voted against the merger, the tally would have been 59%, falling short of the 66.7% required for the merger to go through. Why did the NPS decide to vote in favor of the merger? People thought keeping the Lee family in control was being patriotic, especially given the involvement of foreign shareholders who opposed the move. In any case, the NPS’s cleared the way for Lee Junior to take the reins when his comatose father is finally declared dead. But here comes a curve ball.
It has now been revealed that Lee Junior met with Park Geun-Hye alone for 30 minutes. That meeting is the focus of the bribery investigation involving Samsung. In making payments to Choi, Samsung didn’t make “donations” but may have paid bribes. If the special prosecutor can prove that was the intent, then the company could be indicted for bribery and Lee Junior could be going to jail.
It has now been revealed that Lee Junior met with Park Geun-Hye alone for 30 minutes in July 2015. That meeting is the focus of an ongoing investigation by South Korea’s special prosecutor. In making payments to Choi, Samsung may have wanted something in return. That is, Samsung didn’t make “donations” but may have paid bribes, which come with strings attached. If the special prosecutor can prove that was Samsung’s intent, then, the company could be indicted for bribery. If directly involved, Lee Junior could be going to jail.
Lee Junior was summoned to a hearing in early December. Here, he is being grilled by legislator Ahn Min-Seok on what he and President Park talked about during their 30-minute meeting.
Ahn tells Lee that President Park isn't "bright enough" to talk about entrepreneurial activity for 30 minutes. OUch! Youtube screen capture.
Here’s the exchange:
Ahn: “Didn’t President Park ask for money?”
Lee: “She didn’t say that.”
Ahn: “Then what did you talk to her for 30-40 minutes?”
Lee: “She talked about encouraging entrepreneurial activity. She mentioned Samsung being more active in supporting the Center for Creative Economy & Innovation (CCEI).” [The CCEI is like a small business center for promising start ups in South Korea – it provides legal, financial support and mentoring services to entrepreneurs.]
Ahn: “With President Park’s intellectual capacity, she could not have talked about entrepreneurial activity for 30-40 minutes. She doesn’t have that kind of knowledge.”
Ouch! That just about sums up why Samsung is implicated in this mess. The entire scandal cannot be the work of one woman, who may be in control of the sitting president. Samsung had something to gain by giving money to Choi Soon-Sil. After all, it takes two to tango. Without willing dance partners, Choi may not have collected much or as much. That she did so well, however, shows that the culture of corruption runs deep in South Korea.