Korean court rules in favour of Samsung affiliate in legal battle with US hedge fund Elliott Associates

US hedge fund Elliott Associates suffered a setback in its attempt to block the merger between two affiliates of Samsung, as a Korean court ruled in favour of Samsung C&T to hold a meeting of shareholders in July.

The court will rule ahead of that meeting on a second injunction requested by Elliott to stop a Samsung ally from voting treasury shares bought from the target, Bloomberg reported.

Elliott Associates, which is the third-largest shareholder in Samsung C&T, a Samsung affiliate, has been engaged in a row with the construction company after it 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. Samsung 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 was not in the best interest of Samsung C&T shareholders. It also said it had commenced legal proceedings for an injunction seeking to prevent the takeover.

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.

"There is no reason to say that the merger harms Samsung C&T and its shareholders while only benefiting Cheil and its shareholders alone, given that the share price of Samsung C&T rallied shortly after the merger was announced," the court said in a statement on the ruling.

In a response, Elliott said it was disappointed with the decision, adding that it continued to believe the proposed merger was "neither fair nor in the best interests" of Samsung C&T's shareholders.

"We note that the Court has not yet decided whether the wholly inappropriate sale of treasury shares by Samsung C&T to KCC in blatant support of the proposed merger is, as Elliott believes, unlawful," the fund said in a statement.

"We will continue to seek to prevent the proposed merger from being consummated, and we urge all Samsung C&T shareholders to do the same."