Samsung to unveil plan on Elliott Management’s proposal

Henry Cho, Nov. 28, 2016, 9:18 a.m.

Samsung Electronics is set to unveil its position Tuesday on a proposal to split the company into two, a suggestion made by activist hedge fund Elliott Management.

In early October, Elliott called on Samsung Electronics to separate into a holding company for ownership purposes and an operating company. It also suggested dual-listing the operating company on the US exchange Nasdaq and paying shareholders a special dividend of $27 billion.

In response to the proposals, Samsung had said it would share its overall direction with the market in November.

As the speculations on the split grew, Samsung said in its regulatory filing at 6 p.m. on Monday, “Samsung Electronics has reviewed diverse methods to improve shareholders’ value in the mid-to-long term. We will announce the relevant matters on Tuesday morning.”

Industry watchers said that Samsung Electronics may decide partially in favor of Elliott’s proposals in order to strengthen its Vice Chairman Lee Jae-yong’s succession.

“Samsung is expected to unveil a reasonable direction in a shift in corporate governance, although the detailed time frame may not be disclosed,” said Lee Sang-heon, an analyst at HI Investment & Securities.

“A split of Samsung Electronics may be visualized in the first half of next year on the pretext of Elliott’s proposal, and foreign investors will positively respond to it,” Lee added.

A split into holding and operating companies would allow the hair apparent Lee, who currently holds a 0.59 percent stake of Samsung Electronics, to strengthen his grip on the world’s largest smartphone maker.

This would be possible as when a company is newly created after a split, the company’s treasury shares holders acquire voting rights. When using the voting rights, the Lee family’s 4.91 percent stake would rise to 17.1 percent.

Amid growing speculations on the split, Samsung C&T Corp., of which Lee holds the largest stake, was traded at 139,000 won ($118) on Monday, a 4.1 percent rise from the previous day.

In the letter Elliott had sent to Samsung, the US hedge fund had also called on the tech giant to split into two and merge its holding company with Samsung C&T.

Samsung, however, is likely to face challenges as the National Assembly, where opposition parties hold a majority, is becoming increasingly critical of the succession process in conglomerates.

Last week, Rep. Jeh Yoon-kyung of the main opposition Democratic Party of Korea tabled a bill that would make a company belonging to conglomerates dispose of its treasury stocks when it splits.

“The expansion of treasury stocks by subsidiaries of conglomerates including Samsung Electronics is part of expedient ways of succession rather than in favor of shareholders,” Jeh said. 

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