SeongJoon Cho | Bloomberg | Getty Images

Samsung C&T shareholders approved a $7.7 billion all-stock takeover offer from Samsung's de facto holding company Cheil Industries on Friday, underlining the dominance of South Korea's family-run conglomerates, or chaebols. Shares of Samsung C&T and Cheil Industries lost as much as 9 and 7 percent respectively, while Samsung Electronics popped 2 percent after the decision was announced. The proposed deal is part of a restructuring program driven by the founding Lee family to consolidate power over Samsung Electronics, the prize of all the Samsung affiliates. Buying Samsung C&T would give Chiel control of the former's 4 percent stake in Samsung Electronics, making the new entity created under the merger one of the largest investors in the smartphone maker.

The move would also help the Lee family cement their grip on the Samsung brand ahead of a key leadership transfer. Lee Jae-yong, currently vice-chairman at Samsung Electronics, is widely expected to take over once his father and current chairman Lee Kun-hee officially steps down. The health of the senior Lee remains in focus after he suffered a heart attack last year. "Looking at [Thursday's] share price of Cheil Industries, the stock was up quite a bit so I think the market was betting that Samsung would get the merger to go through," said Michael Na, Nomura's Korea strategist, adding that Samsung tried really hard to win over retail investors. Cheil shot up as much as 5 percent on Thursday.

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Elliott vs Samsung

U.S. hedge fund Elliott Associates, Samsung C&T's third-largest shareholder, opposed the terms of the merger in a rare display of shareholder activism in South Korea, saying it greatly undervalued Samsung C&T while overvaluing Cheil Industries. Elliott has a 7 percent stake in Samsung C&T and CEO Paul Singer has been sharply critical of the deal. Speaking to CNBC at the Delivering Alpha conference in New York this week, Singer said the merger should be rejected so it can serve as an example of more stringent corporate governance in South Korea. His argument is persuasive, noted Ji-Soo Lee, senior consultant at the Center for Good Corporate Governance. "For the past few years, Samsung C&T's stock price has gradually decreased. Markets say current prices don't reflect the firm's intrinsic value, while Cheil Industries has hit its peak. Furthermore, Cheil just went public six months ago so it seems like the merger ratio is quite unfair to C&T shareholders." South Korea's National Pension Service (NPS), which holds the largest stake in Samsung C&T at 9.9 percent, said last week that it supported the takeover. Nomura noted that the NPS was justified in its stance since it also owns about 5 percent of Cheil Industries. If the merger didn't pass, Cheil shares could plunge, hurting its valuation, the bank explained.

Friday's vote comes as Elliott filed an appeal on Thursday to South Korea's Supreme Court, after a lower court ruled against its attempts to block the merger. The fight with Singer turned particularly ugly on Thursday on news that, following protests from Jewish groups, Samsung C&T had removed alleged cartoons depicting Singer as a vulture-like figure on its website. Singer is Jewish. According to the Associated Press (AP), the images were online for several weeks and Samsung C&T reportedly asked the AP not to publish the story before Friday's meeting. The firm issued a statement later in the day, saying "we categorically denounce anti-Semitism in all its forms, and we are committed to respect for all individuals."

Family dynasties