[ELLIOTT ACTIVISM] Elliott gives Samsung good reason to speed up restructuring

[THE INVESTOR] Local analysts on Oct. 6 said Elliott Management’s demand for separation of Samsung Electronics  and big shareholder payout will be giving a good reason for Samsung Group to speed up the ongoing business restructuring ahead of a pending leadership transfer to a new generation.

“Elliott’s demands include most of the process that Samsung is expected to experience in its ongoing business restructuring,” said Yoon Tae-ho, analyst at Korea Investment and Securities.

“The hedge fund gave a good reason for Samsung to seek a holding company, an idea that has long been considered but the company has never publicized it due to shareholders’ possible resistance.” 

Samsung Electronics Vice Chairman Lee Jae-yong

In a 10-page letter publicized on Oct. 5, affiliates of Elliott -- Blake Capital and Potter Capital -- called on South Korea’s largest conglomerate to split its flagship Samsung Electronics into holding and operating companies for organizational and tax benefits and asked it to pay shareholders a special dividend of 30 trillion won (US$27 billion), among other steps.

Setting up a holding company will simplify the group’s complex shareholding structure and more importantly strengthen heir apparent and Samsung Electronics Vice Chairman Lee Jae-yong’s control over Samsung companies. But related discussions have faced public resistance due to criticism that the benefits will go to the owner family only. 


See also :

Full text: Elliott Management's Samsung Electronics Value Enhancement Proposals


“The latest demand by Elliott makes investors recognize the value of Samsung Electronics’ non-operational assets, including shares owned by its sister firms,” said Kim Sun-woo, analyst at Meritz Securities, adding that the company's share prices are still undervalued.

Elliott also proposed a NASDAQ listing of the operating company to boost trading volumes and share prices.

Yoon, the analyst, thought the proposed amount of the special dividend was a little excessive but he said elevating shareholder dividends had already been considered to gain support from investors in Samsung’s ownership transfer.

“Elliott’s demand will become a trigger to speed up Samsung’s business overhaul rather than causing disputes between the two,” he said, referring to the highly-publicized proxy battle between Samsung and Elliott over the then planned merger of Samsung C&T and Cheil Industries last year. 

He added the upcoming events will further raise the company's stock prices in the coming months. 

On the day, shares of Samsung Electronics closed at 1,691,000 won on the local bourse, up 4.45 percent from the previous trading day. 

By Lee Ji-yoon (jylee@heraldcorp.com)