SEOUL -- The events leading to the legal troubles hounding Samsung Group's heir-apparent Lee Jae-yong may have started with last year's corporate reshuffle designed to pave the way for a smooth succession of power.
As vice chairman of Samsung Electronics, Lee has effectively taken over as head of the South Korean conglomerate after his father, group Chairman Lee Kun-hee, became medically incapacitated in 2014. But the special prosecutor's office on Monday formally petitioned to arrest the younger Lee for allegedly arranging 43 billion won ($36.8 million) in bribes to Choi Soon-sil, the shadowy confidante of impeached President Park Geun-hye. A court on Thursday rejected the request for an arrest warrant.
In return, according to the special prosecutor, Lee asked the Park administration to intervene in the merger of two Samsung affiliates: Cheil Industries, then the group's de facto holding company, and construction concern Samsung C&T. The president's office then purportedly pressed the government-backed National Pension Service to exercise its considerable stakes in the two units to support the merger at an extraordinary shareholders meeting in July 2015.
An arrest would have put Lee in detention for close to two months at a minimum, based on past arrests of leaders of South Korea's family-owned conglomerates, or chaebols. Absent an arrest warrant, the special prosecutor may pursue an indictment without an arrest.
The fateful merger was part of a larger scheme to hand the reins of Samsung Group to the chairman's son. By folding Cheil and Samsung C&T into each other, the younger Lee tightened his circular holdings on Samsung Electronics, the crown jewel of the group.
Lee's personal stake in Samsung Electronics does not amount to 1%, and his father's ownership falls short of 4%. Samsung Electronics' brass "felt strongly there is a risk of exposure to a hostile takeover," said a source close to the company.
Samsung Group announced in November that it was reviewing a move to a holding company structure. Market analysts see Lee owning between 20% and 30% of the holding company in that event. "The risk of a buyout would drop significantly," said the same source. Without the 2015 merger, Lee would be unable to accumulate that level of ownership in a holding company. For him to establish a stable management base, that consolidation was essential.
Many Samsung C&T shareholders denounced the merger, claiming it undervalued the company while overvaluing Cheil. Votes cast by Samsung C&T investors were just over 69% in favor of the proposal, barely enough to satisfy the two-thirds supermajority rule.
Although Samsung could have considered repricing the companies, the group has maintained that the merger ratios were based on fair valuations. One securities analyst said the group hastily pursued the merger in the wake of Chairman Lee's unforeseen hospitalization after a heart attack.