Why did Jaeyong Lee say, “If you and Buffett have a meeting schedule, please let me know”?


Recording Lee Jae-yong’s court ⑩
Prosecutors and lawyers fight over ‘Sell Samsung Life to Warren Buffett’
Prosecutors “Attempt to sell to raise inheritance tax… Promotion of ‘back contract’
Lawyer “Discussing with Goldman Sachs proposal… There was no contract.”

Samsung Electronics Vice Chairman Lee Jae-yong attends the first trial on suspicion of accounting fraud and unfair merger held at the Seoul Central District Court in Seocho-dong, Seoul on the 16th. yunhap news

An unexpected person appears in the indictment of Samsung Electronics Vice Chairman Lee Jae-yong and other allegations of illegal succession of group control. Berkshire Hathaway Chairman Warren Buffett is known as the so-called ‘investment genius’. The indictment states that on July 11, 2015, Vice Chairman Lee met with Chairman Buffett in the United States to discuss the sale of Samsung Life Insurance. Prosecutors claim that Vice Chairman Lee tried to make a ‘back contract’ in favor of the CEO’s family while trying to hand over Samsung Life Insurance to Berkshire Hathaway.

The ‘meeting with Buffett’ is one of the few cases in which Vice Chairman Lee’s actions were directly revealed in the trial of the case that began in October last year. Prosecutors are pointing out that while Lee tried to sell his stake in Samsung Life, a major asset of Cheil Industries, to maintain his personal control of the group, he did not disclose such important information to investors. Goldman Sachs Korea Representative Jeong Hyeong-jin, who consulted Vice Chairman Lee on the sale of Samsung Life Insurance, went to the hearing of Vice Chairman Lee and others from the 3rd of last month to the 2nd of this month at the Seoul Central District Court Criminal Division 25-2 (Chief Judges Park Jeong-je, Dr. Sa-rang, and Kwon Seong-soo). He appeared as a witness in turn and testified about the situation at the time. In the courtroom, e-mails written by Vice Chairman Lee himself were presented as evidence on the part of the prosecution, and the prosecution and the lawyers on the side of the vice-chairman fought over it.

Hankyoreh data photo

Hankyoreh data photo

The reason why the sale of Samsung Life Insurance, which was said to be “let’s make a decision in three to five years” in 2012, came back after one year and seven months

Prosecutors believe that Vice Chairman Lee tried to sell Samsung Life Insurance for two reasons. The first is the issue of gold-industry separation. If you look at Samsung’s governance structure at the time, it was a gold-industrial combination structure that went from Vice Chairman Lee → Cheil Industries → Samsung Life Insurance → Samsung Electronics. This has been cited as Samsung’s weakness because it violates the principle of separation of finance and industry, which prohibits mutual ownership of equity between financial capital and industrial capital. The second is the inheritance tax issue. At that time, it was said that he was trying to raise funds for inheritance tax by selling Samsung Life Insurance, which has a high stake in the head of the family, since a huge inheritance tax burden was expected at the time of the death of Chairman Lee Kun-hee. Of course, the sale of Samsung Life did not go through. Prosecutors are paying attention to the fact that after Chairman Lee Kun-hee passed away from an acute myocardial infarction on May 10, 2014, discussions about the sale of Samsung Life between Vice Chairman Lee and Goldman Sachs began again. The sale of Samsung Life Insurance was also discussed in 2012. In October 2012, Vice Chairman Lee said that he said to Chris Cole, then chairman of the Ivy (IB) division of Goldman Sachs US headquarters, that he would decide to sell Samsung Life Insurance within 3 to 5 years. If you look at the email that Cole shared with CEO Jeong Hyeong-jin after meeting with Vice Chairman Lee, he said, “I don’t know when Vice Chairman Lee Jae-yong asked, ‘Where do you want to focus on finance and manufacturing?’ There is no need to make a hasty decision.” I told Lee, ‘But in the next few years, the inheritance tax will force the choice,’ and Lee agreed. He said ‘3 to 5 years (to be decided within)'” is written. However, about one year and seven months later, when Chairman Lee Kun-hee fell ill, the issue of Samsung Life sale rises to the table again. Vice Chairman Lee met with Chairman Cole on May 16, 2014 to discuss the sale of Samsung Life again. Looking at the contents of the email exchanged between Chairman Call and CEO Chung around that time, CEO Jung recounted the conversation with the defendant Wang-Ik Lee, who was working on the Samsung Future Strategy Office (Unrecognized Office) and then Executive Vice President (Funding Part of Strategy Team 1, Un-Executive Office), and said, “Executive Director Wang-Ik Lee He asked for a thorough review of Vice Chairman Lee’s request to ‘sell Samsung Life’. Executive Vice President Lee asked us to focus on a simple sale plan without considering complicated divisions of the company. The Samsung Life acquirer requested that Samsung Life’s stake in Samsung Electronics be held for the next 7 to 10 years without selling it to a third party.” Cole, who received the e-mail, said, “I am not sure how to ask the Samsung Life acquirer not to sell Samsung Electronics shares for 7 to 10 years.” When the prosecution asked about this, CEO Jung said with the intention of ‘difficult to answer’.

“Did the defendant Wang-Ik Lee demand that the Samsung Life acquirer hold a stake in Samsung Electronics?” (test)
“Whether to sell (Samsung Life) without a stake in Samsung Electronics or to sell with it was one of the key points in successfully completing this M&A. In that sense, there were discussions, and there were a lot of discussions like that, including the stake in Samsung Electronics, it is not easy to sell Samsung Life (because it is large), and it is rather easy to sell it if you take out the stake in Samsung Electronics.” (Witness Jung Hyung-jin)

“The question is whether the defendant Wang-Ik Lee made a condition to ‘sell Samsung Life, including the stake in Samsung Electronics, and instead hold the stake in Samsung Electronics’.” (test)
“Samsung said that, so it’s especially true for me to say.” (witness)

photo Yonhap News

photo Yonhap News

Prosecutors say Samsung offers Warren Buffett a ‘two-sided contract’

In June 2014, Goldman Sachs presented Berkshire Hathaway to Lee as one of the potential acquirers of Samsung Life Insurance. Vice Chairman Lee welcomed this fact and inquired directly to Goldman Sachs about the schedule of the call with Berkshire Hathaway, and also talked about the date of the meeting with Goldman Sachs and Chairman Buffett on June 4, 2015, saying, “John Weinberg (then Goldman) Sachs Vice Chairman) and Chairman Buffett, please let me know when the meeting schedule is decided.” On June 4, 2015, activist fund Elliott announced that it held a 7.12% stake in Samsung C&T and expressed its opposition to the Cheil Industries-Samsung C&T merger. Afterwards, the prosecution said vice-chairman Lee and others told Buffett through Goldman Sachs that △Samsung Life was split into two business companies (life insurance business, holding stakes in Samsung Electronics) and holding companies (holding stakes in other financial affiliates) and △Berkshire Hathaway started the business. It is judged that the proposal was made to acquire a stake in the company, △hold a stake in Samsung Electronics, which is owned by a Samsung Life business company, for 7 to 10 years, and enter into an agreement to exercise voting rights in a friendly manner with Samsung and △ announce the deal as the one proposed by Warren Buffett first. . Prosecutors presented several e-mails during the trial and continued the interrogation to the effect that Vice Chairman Lee and others offered a hidden contract in connection with the sale of Samsung Life Insurance. The defendant, President Kim Jong-joong (then head of the strategy team for the Mijeon Room 1) told Goldman Sachs that he was considering a sale to Chairman Buffett, saying, “It should be clear whether Chairman Buffett said that Samsung Life’s stake in Samsung Electronics was okay. It is said that he asked whether Chairman Buffett could wait until Samsung Life was split up and established a holding company and a business company, and whether there is a guarantee that Buffett will not cancel the contract after the establishment of the holding company. In July 2015, Chairman Cole summarized the meeting details between Chairman Buffett and Goldman Sachs and sent an email to Vice Chairman Lee, saying, “(Chairman Buffett) wants a 1:1 meeting in Sun Valley. If this transaction proceeds, it is also said that Gentleman (Chairman Buffett) is also aware of the expression, ‘I proposed a deal to Vice Chairman Lee first.'” However, the sale of Samsung Life Insurance did not go through.

“Is it true that Samsung made the offer to sell Samsung Life Insurance first? Still, he said, ‘Warren Buffett made the proposal first when announcing the future deal,’ and Warren Buffett responded to this. What was the background?” (test)
“I don’t remember the inspector.” (witness)

“Does Goldman Sachs propose this independently regardless of the will of the defendant Jae-yong Lee?” (test)
“It is difficult to answer because I do not remember the content.” (witness)

“Is it possible only with Samsung’s request or understanding for major transactions or contents? Whether it be the accused Jae-yong Lee or Samsung. Can Goldman Sachs propose something like this on their own?” (test)
“I can’t (independently) make a proposal, but I don’t know who approved and did the (proposal) internal process.” (witness)

Hankyoreh data photo

Hankyoreh data photo

“Do you hand out wedding invitations because you had a meeting?”

Vice Chairman Lee countered this with the purport that ‘the discussion on the sale of Samsung Life was made at the suggestion of Goldman Sachs’. The position is that Vice Chairman Lee did not intend to sell Samsung Life Insurance to prepare for inheritance tax, but merely reviewed the sale following an active proposal from Goldman Sachs. Vice Chairman Lee’s lawyers argued that when other sales ideas proposed by Goldman Sachs failed to materialize, Cole, an insurance expert, proposed the sale of Samsung Life Insurance. According to the data disclosed in court, Goldman Sachs proposed to sell Samsung Everland stake held by Samsung Card in 2010, but it did not work out, so in 2012, it was suggested that Samsung Life be sold to Vice Chairman Lee. Regarding this, CEO Jung said, “We marketed (the sale of Samsung Life Insurance) as an extension of (activities).” Regarding the sale of Samsung Life, which Vice Chairman Lee said in 2012, ‘a decision will be made in three to five years’, he resumed discussions right after Chairman Lee Kun-hee fell ill, and Executive Vice President Lee Wang-ik asked, “Please review Vice Chairman Lee’s request.” The defense counsel objected. The meeting on May 16, 2014, in which Vice Chairman Lee and Chairman Cole met and discussed the sale of Samsung Life Insurance, was originally scheduled for a meeting related to the advertising business. meaning that it is only

“This is an email sent by the Witness on May 14, 2014. From the content of this email, it appears that Goldman Sachs has created meeting materials to discuss advertising for an upcoming meeting.” (Lawyer)
“Yes.” (witness)

“If the discussion of the sale of Samsung Life had been raised at the meeting on May 16, 2014, who do you think would have brought it up under the circumstances?” (Lawyer)
“Chris makes a lot of suggestions.” (witness)

“Some say that after Chairman Lee Kun-hee passed away, the defendant Jae-yong Lee gave instructions to Goldman Sachs to ‘immediately sell the stake in Samsung Life Insurance’ at a meeting to raise funds for enormous inheritance tax. What do you think?” (Lawyer)
“I don’t remember that there was any action (related to it). I also took over the sale of Samsung Card, but usually when a project starts, a lot of people are put in, have meetings, and discuss the contract of acceptance, but I don’t remember that there was any action at that time.” (witness)

“The witness said that if there was talk of the sale of Samsung Life, Chris Cole might have brought it up, but Chris Cole brought it up and the defendant Jae-yong Lee asked ‘how can we sell it?’ ?” (Lawyer)
“I don’t remember exactly, but I think it could have been.” (witness)

In addition, Vice Chairman Lee said that when he made the offer to buy Samsung Life to Chairman Buffett, he requested that he “exercise his stake in Samsung Electronics in a way that is favorable to the owner’s family,” but there was no other side contract such as “holding for 7 to 10 years.” The lawyers presented the final copy of the proposal passed to Chairman Buffett, saying, “We want the buyer of Samsung Life to hold a stake in Samsung Electronics and exercise their voting rights in the same direction as the major shareholder.” He objected that it was not listed. The lawyers asked, “Isn’t there a proposal for a friendly voting right in a friendly M&A?” and the witness answered “yes”. In addition, President Kim Jong-joong’s request to confirm ‘whether Chairman Buffett can hold an electronic stake in Samsung Life Insurance for a certain period of time’ was not decided before negotiating the sale of Samsung Life. He said that he only confirmed the premises, such as what would happen if the company splits and the business holds an electronic stake. In addition, in July 2015, Buffett said, ‘Buffett in July 2015 did not inform the shareholders of Cheil Industries, whose major asset is Samsung Life Insurance, in order to complete the Cheil Industries-Samsung C&T merger even though the sale of Samsung Life was made visible,’ which is the core argument of the prosecution. Prior to the one-on-one meeting with the chairman, there was no need to inform investors as there were no specific negotiations, such as price conditions not being presented.

“(At the Vice-President Lee-Buffett meeting), it seems that nothing has happened other than getting to know each other, but how do the witnesses see it?” (Lawyer)
“When doing M&A, even if you are interested in assets, there are a lot of cases where if you meet for the first time and do not match, it will not go through. So, I think the first meeting is like a meeting.” (witness)

“Has Goldman Sachs done anything related to the sale of Samsung Life after the above point? Have you ever discussed specific terms of sale, such as price?” (Lawyer)
“There is not.” (witness)

“Isn’t it right to view it as something that never happened when it ends at that level?” (Lawyer)
“If you look at the total as 100, you have not even gone through steps 1 or 2. That’s why I thought that maybe he wasn’t interested in the first place.” (witness)

“If we inform the market of what has been completed after a meeting, wouldn’t it confuse the market?” (Lawyer)
“That’s right. Because it affects the stock price… . I had a meeting, but I think it’s like handing out a wedding invitation. The announcement is usually made around the time the contract is negotiated and a resolution is made by the board of directors.” (witness)

In addition to the sale of Samsung Life, Goldman Sachs consulted on the Cheil Industries-Samsung C&T merger and Elliott countermeasures, and the prosecution and defense counsel fought a nerve war over it in the trial. The court has summoned former Goldman Sachs executives to testify as witnesses. In the new year, an accountant from Anjin Accounting Firm, who created a report stating that the ‘Cheil Industries-Samsung C&T merger ratio is reasonable’, is expected to appear as a witness. By Shin Min-jung, staff reporter [email protected]


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