Tech giant Samsung Electronics Co Ltd will consider creating a holding company in what would be the biggest shake-up in its 47-year history as the company is under pressure from shareholders to improve investor returns, the company said on Tuesday.
After a call for the South Korean firm to split itself into a holding vehicle and an operating company given by U.S. hedge fund Elliott Management in October, this announcement by the company followed.
However Samsung said it was “absolutely neutral” about whether to proceed and provided little detail on the potential restructuring which overwhelmed investors of the world’s top maker of smartphones, memory chips and televisions.
“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.
Analysts say that while uncertainty over the restructuring kept investors at bay, the 2016 dividend boost fell short of some expectations.
“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.
While Samsung promised to respond to the fund’s ideas by the end of November, the South Korean firm did not directly mention Elliott in its statement.
Falling short of Elliott’s call for 75 percent to be returned and to pay a $26 billion special dividend, Samsung pledged to return 50 percent of free cash flow to shareholders for 2016 and 2017.
Samsung has no plans at present to merge that with Samsung C&T Corp, the group’s current de facto holding company even if it adopts a holding company, the company said rejecting another Elliott proposal.
“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.
A way for the Lee family scion, Jay Y. Lee, and his two sisters to boost their control of Samsung Group companies is a split for Samsung Electronics, investors and analysts have long said.
Due to what analysts say is a complex ownership structure, poor corporate governance and inefficient cash management, they have said that Samsung shares trade at steep discounts to global peers. The hope is that the company’s value would be boosted by a major restructuring which would address those concerns.
The Lees and affiliates in the Samsung group of companies to exchange their operating company shares for stock in the holding firm is the expectation that investors would have under a restructuring.
Investors say that Samsung Electronics would then return more capital to shareholders. In the event that 74-year-old Samsung Group patriarch Lee Kun-hee dies, the Lee heirs face a multi-billion dollar inheritance tax and such a move would boost earnings for Samsung Group firms and the Lee heirs. Following a heart attack, the senior Lee has been in hospital since May 2014.
If the restructuring addresses “decades of inefficient structures, poor governance and weak corporate behavior towards minority shareholders”, the asset manager would be satisfied, Henderson’s Duhra said.
(Adapted from Reuters.com)