Samsung Electronics reviews holding company structureMadeinkoreablog
Samsung Electronics Co. said Tuesday it has been reviewing the “possibility” of creating a holding company structure to improve the company’s corporate structure and enhance its transparency.
In a statement, Samsung said it will also increase total dividends in 2016 by 30 percent on year, bringing the annual dividend amount to 4 trillion won ($3.4 billion).
“Samsung Electronics has taken steps to simplify its business to concentrate on core capabilities in the past several years and the company continues to review opportunities to optimize long-term value,” Samsung said in the statement.
This includes the possibility of creating a holding company structure and the potential benefits and feasibility of listing the company’s shares on additional international exchanges,” it said.
Samsung said it will take about six months for the review to be completed.
“The review does not indicate the management or the board’s intention one way or another. The process is expected to require at least six months and Samsung Electronics will make a decision only after the review is complete,” it said.
The announcement came shortly after Samsung’s board of directors held a meeting earlier in the day, amid growing calls to improve shareholder value.
US hedge fund Elliott Management proposed in October that Samsung split itself into two publicly listed firms — a holding company and an operating company — and pay a special dividend of
30 trillion won to “remedy” the company’s “excessive and inefficient capital structure.”
Currently, Samsung is moving to limit the damage done by the global recall of the Galaxy Note 7 at a time when Vice Chairman and heir apparent Lee Jae-yong has taken key leadership roles.
“We are committed to enhancing sustainable long-term value for our shareholders and to remaining good stewards of capital,” Kwon Oh-hyun, vice chairman and CEO of Samsung, said in the statement.
It was the first time that Samsung Electronics, the crown jewel of the sprawling Samsung Group, officially announced the possible shift to a holding company structure.
Market watchers have long speculated that Samsung Electronics would probably be split into a holding company and an operating company, in order to allow the younger Lee to increase his shareholding in the electronics giant.
The younger Lee owns a 0.59-percent stake in Samsung Electronics, a 17.23-percent stake in Samsung C&T and a 9.2-percent stake in Samsung SDS. Samsung C&T holds a 4.1-percent stake in Samsung Electronics.
One market speculation suggests that Samsung’s holding company would eventually merge with Samsung C&T.
Kim Sang-jo, professor of economics at Hansung University in Seoul, said a shift to a holding company structure would complete Samsung’s third-generation management succession to the younger Lee.
“The transformation into a holding company is the way that Samsung wants and what the market expects. There are no objectors to the plan,” Kim said.
In a conference call after the announcement, Samsung’s chief financial officer, Lee Sang-hoon, told investors that the company has no plans to consider a merger between a holding company and Samsung C&T at the moment.
“At present, we will only consider the shift to a holding company structure,” Lee said.
Lee Myung-jin, head of Samsung’s investor relations team, said the company could list shares of an operating company on a US stock exchange, but he was uncertain about the idea.
“I am doubtful whether the listing on a US exchange would really work in a situation where the Korean stock index is not included in MSCI’s developed market index,” Lee said. “I think that uncertainty is significant in the long term.”
Meanwhile, Samsung, which completed a share buyback worth 11.3 trillion won this year, said it will buy back and cancel additional shares in January next year, while keeping a cash reserve of as much as 70 trillion won.
Samsung said it “has concluded that achieving these business objectives on a sustained basis will require maintaining a net cash balance of 65 to 70 trillion won, based on its historical and expected capital expenditures, working capital requirements, M&As and other financing needs.”
Shares of Samsung Electronics fell 0.42 percent to 1,670,000 won at one point in Tuesday morning trade.
Samsung will allocate 50 percent of free cash flow to shareholder returns, compared with the 30-50 percent range announced in 2015, according to the statement.
To increase transparency, Samsung’s board of directors plans to appoint an outside director with global corporate experience and set up a new governance committee, comprised solely of independent board members. The move will likely pave the way for the participation of a foreigner in the company’s board.
Samsung has been reviewing candidates for a new outside director and will name the director at next year’s shareholder meeting, a Samsung official said.