Investors pressure Samsung to review its structure
UNDER pressure from investors, Samsung Electronics said yesterday it might restructure its vast operations as a way to unlock shareholder value.
The family-controlled South Korean electronics giant said it would consider creating a holding company and listing its operations on international exchanges.
Samsung will begin a review of its options that will take at least six months, it said.
The review comes after a US hedge fund, Elliott Management, called for the company to take steps to bolster its share price. Those steps included creating a holding company and a listing on a US exchange by one of its arms.
A Samsung move to restructure could ease some of those concerns, according to Sanford C Bernstein & Co, a research and brokerage firm.
“Post restructure, we expect to see more alignments between the de facto ‘owners’ of Samsung group and the rest of the shareholders, and thus, expect more shareholder friendly measures” like dividends and buybacks, wrote analyst Mark Newman.
Samsung also said it would increase its dividend by more than one-third from this year’s level and buy back more shares.
Strong reviews
Although Elliott is a small shareholder, the call gained traction with other shareholders after Samsung suffered setbacks. The biggest was the recall and cancellation of its Galaxy Note 7 smartphone last month.
The phone won strong reviews for its design and was considered a step forward in its competition with Apple’s popular iPhone.
But some of the units burst into flame, and Samsung cancelled the phone after a bungled recall process.
Still, Elliott had argued that the electronics company’s problems went beyond defective phones. In a letter this autumn, it said that the opaque and densely linked holding structure of Samsung’s many companies meant the true value of the company’s electronics operations had not been fully reflected in its share price.
Samsung Electronics is part of the larger Samsung empire, a constellation of companies controlled by the family of its chairman, Lee Kun-hee. JayY Lee, Lee Kun-hee’s son and vice chairman of Samsung Electronics, was expected to be a key part of any restructuring.
Full-on restructuring
Last month he was approved as a director of the company, which was widely seen as increasing his influence there.
The push by Elliott comes after it lost an effort last year to halt the merger of Samsung C&T and CheilIndustries,amovedesigned to consolidate power in the hands of the younger Lee.
Although that effort won the backing of international inves- tors, it also earned Elliott the moniker “vulture capitalist” within South Korea, where large family-run companies, known as chaebol, often fiercely resist outside intervention.
This time, however, things could be different. The company has taken a softer tone, and in the announcement yesterday, Samsung seemed to have addressed most of the points in Elliott’s letter, though it stopped short of committing to a full-on restructuring. Instead it said that it had “retained external advisers to conduct a thorough review of the optimal corporate structure,” which would take six months.
In its letter, Elliott argued that the company should divide itself into two publicly traded companies: a holding company that serves as the Lee family’s main ownership vehicle, and a separate company that would hold the electronics business.