Sam­sung Elec­tron­ics con­sid­ers split as in­vestor pres­sure builds

Arab News - - BUSINESS -

SEOUL: Tech gi­ant Sam­sung Elec­tron­ics Co. Ltd, un­der pres­sure from share­hold­ers to im­prove in­vestor re­turns, said on Tues­day it will con­sider cre­at­ing a hold­ing com­pany in what would be the big­gest shake-up in its 47-year his­tory.

The move and a plan to raise div­i­dends come af­ter US hedge fund El­liott Man­age­ment in Oc­to­ber called for the South Korean firm to split it­self into a hold­ing ve­hi­cle and an op­er­at­ing com­pany.

How­ever, the world’s top maker of smart­phones, mem­ory chips and tele­vi­sions, said it was “ab­so­lutely neu­tral” about whether to pro­ceed and pro­vided lit­tle de­tail on the po­ten­tial re­struc­tur­ing, un­der­whelm­ing in­vestors.

“The re­view does not in­di­cate the man­age­ment or the board’s in­ten­tion one way or another,” the com­pany said in a state­ment, adding it had hired ex­ter­nal ad­vis­ers for a re­view ex­pected to take at least six months.

Shares in Sam­sung, worth $224 bil­lion com­bined, fin­ished un­changed on the day at 1.677 mil­lion won ($1,434) each. The 2016 div­i­dend boost fell short of some expectations, while uncer­tainty over the re­struc­tur­ing kept in­vestors at bay, an­a­lysts said.

“There is some dis­ap­point­ment that the div­i­dend wasn’t even higher or pos­si­bly a spe­cial div­i­dend and this is the rea­son for a flat share price to­day,” said Sat Duhra, as­set man­ager at Hen­der­son Global In­vestors.

Sam­sung did not di­rectly men­tion El­liott in its state­ment, but the Korean firm promised to re­spond to the fund’s ideas by the end of Novem­ber.

Sam­sung pledged to re­turn 50 per­cent of free cash flow to share­hold­ers for 2016 and 2017, falling short of El­liott’s call for 75 per­cent to be re­turned and to pay a $26 bil­lion spe­cial div­i­dend.

Sam­sung re­jected another El­liott pro­posal by say­ing that even if it adopts a hold­ing com­pany, it has no plans at present to merge that with Sam­sung C&T Corp, the group’s cur­rent de facto hold­ing com­pany.

“I don’t think Sam­sung said much that was sur­pris­ing or be­yond what in­vestors al­ready had in mind,” said HDC As­set Man­age­ment fund man­ager Park Jung-hoon.

In­vestors and an­a­lysts have long viewed a split for Sam­sung Elec­tron­ics as a way for the Lee fam­ily scion, Jay Y. Lee, and his two sis­ters to boost their con­trol of Sam­sung Group com­pa­nies.

They have said that Sam­sung shares trade at steep discounts to global peers due to what they say is a com­plex own­er­ship struc­ture, poor cor­po­rate gov­er­nance and in­ef­fi­cient cash man­age­ment.

The hope is that a ma­jor re­struc­tur­ing would ad­dress those con­cerns and boost the com­pany’s value.

Sam­sung ex­ec­u­tives did not elab­o­rate on the re­struc­tur­ing in a con­fer­ence call on Tues­day.

But un­der a re­struc­tur­ing, in­vestors would ex­pect the Lees and af­fil­i­ates in the Sam­sung group of com­pa­nies to ex­change their op­er­at­ing com­pany shares for stock in the hold­ing firm, strength­en­ing their grip.

Sam­sung Elec­tron­ics would then re­turn more cap­i­tal to share­hold­ers, in­vestors say. Such a move would boost earn­ings for Sam­sung Group firms and the Lee heirs, who face a multi-bil­lion dol­lar in­her­i­tance tax in the event that 74-year-old Sam­sung Group pa­tri­arch Lee Kun­hee dies. The se­nior Lee has been in hospi­tal since May 2014 fol­low­ing a heart at­tack.

Hen­der­son’s Duhra said the as­set man­ager would be sat­is­fied with a re­struc­tur­ing if it ad­dresses “decades of in­ef­fi­cient struc­tures, poor gov­er­nance and weak cor­po­rate be­hav­ior to­ward mi­nor­ity share­hold­ers.”

Sam­sung said it would in­crease div­i­dends for 2016 by 36 per­cent to 28,500 won ($24.36) per share, and buy back and can­cel ad­di­tional shares in Jan­uary 2017 with what­ever ex­cess free cash re­mains from 2016.

The firm also said it needed to main­tain a net cash po­si­tion of be­tween 65 tril­lion won and 70 tril­lion won, sug­gest­ing it is not likely to pay the spe­cial div­i­dend sought by El­liott.

Sam­sung Elec­tron­ics is re­view­ing its cor­po­rate struc­ture as in­vestors step up pres­sure to re­form the tech gi­ant’s gov­er­nance struc­ture. (Reuters)

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