ISS, Glass Lewis support shareholder activism at Samsung C&T

The world’s two most influential proxy advisers recommended Samsung C&T’s shareholders to vote for proposals made by a group of activist funds during the forthcoming general meeting of shareholders on March 15, according to industry officials, Sunday.

In their recent reports, Institutional Shareholder Services (ISS) and Glass Lewis asked the Korean company’s shareholders to support the proposals for a share buyback and increased dividends.

Their recommendation came after City of London Investment, Whitebox Advisors and other hedge funds urged Samsung C&T last month to allocate 500 billion won ($375 million) to a share repurchase program and pay a 4,500 won dividend per common share and a 4,550 won dividend per preferred share.

“Given the company’s robust balance sheet, improving operational performance and strong cash flow generation, support for the dissident proposals for a higher dividend and share buyback is warranted,” ISS said. “Instead of addressing the shareholder concerns, management turned to a ‘well-known tool of choice’ — a light-on-detail ambitious investment program that includes massive capex and promises of growth.”

Samsung C&T asked its shareholders last month to vote against the activist funds, emphasizing that their proposals weigh heavily on its management. In order to win over shareholders, the construction, trading and resort firm, which is considered Samsung’s de facto holding company, also agreed to retire nearly 1 trillion won worth of treasury stocks.

ISS viewed that the shareholder concerns were valid, saying that their proposals are unlikely to have any negative impact on Samsung C&T’s liquidity or future capital needs.

Glass Lewis shared this view, saying it sees little evident downside in supporting the resolutions submitted by the dissidents at this time.

“On balance, we believe the dissidents have presented a superior case to investors, drawing a persuasive throughline between the company’s historical share price performance, present trading discount and seemingly less than urgent plans to remediate either,” it said.

Glass Lewis also asked Samsung C&T’s shareholders to vote against a proposed directors’ fees, regarding the compensation as excessive. In addition, the advisory firm opposed the appointment of a former head of the Daegu High Prosecutors’ Office as a non-executive director, citing concerns over the board’s independence.

“The nominee serves as partner of Yulchon which has provided legal services to Samsung Group,” it said. “We view such relationships as creating conflicts for directors, as they may be forced to weigh their own interests in relation to shareholder interests when making board decisions.”

The group of activist funds that made the shareholder proposals hold a combined 1.46 percent stake in Samsung C&T, while Samsung Electronics Executive Chairman Lee Jae-yong and his allies hold a combined 34 percent stake.

Considering the shareholder structure, it will be difficult for the activist funds to defeat Samsung C&T’s management unless they win support from a significant number of minority shareholders, who collectively own a 22 percent stake, as well as from foreign investors having a combined 19 percent stake and domestic institutions having a combined 12 percent stake.

The activist funds are asking minority shareholders to entrust the funds with a vote. The funds hired domestic law firms Kim Chang Lee and Lin.