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(News Focus) Samsung unlikely to fully accept U.S. fund's proposals

2016/10/10 16:09

By Kim Deok-hyun

SEOUL, Oct. 10 (Yonhap) -- Some officials at Samsung Electronics Co. and analysts said it will be difficult for Samsung to fully accept proposals by U.S. activist hedge fund Elliott Management, particularly a call to pay a special dividend amounting to about US$27 billion.

Elliott proposed last week in a letter that Samsung split itself into two publicly listed firms -- a holding company and an operating company -- and pay a special dividend to "remedy" the company's "excessive and inefficient capital structure."

  

Images of Samsung's logo and headquarters, and U.S. hedge fund Elliott's logo (Yonhap file photo) Images of Samsung's logo and headquarters, and U.S. hedge fund Elliott's logo (Yonhap file photo)

Some officials at Samsung have reacted coolly to the Elliott proposal to pay the huge amount of special dividends.

"One of Samsung's core competitive edges is a pre-emptive facility investment," a Samsung official said.

The Samsung official said a cash dividend worth about $27 billion will be "difficult in reality" for a company that spends tens of billions of dollars per year for facility investment and research projects.

Ample cash reserves are also needed for Samsung, which has increasingly acquired foreign technology startups in recent times.

Lee Sang-heon, an analyst at HI Investment & Securities, said it will be difficult for Samsung to pay such a huge amount of dividends.

Samsung Electronics Vice Chairman Lee Jae-yong, with a Galaxy Note 7 smartphone in hand, arrives at Samsung's headquarters in southern Seoul on Sept. 21, 2016. (Yonhap file photo provided by Newspim) Samsung Electronics Vice Chairman Lee Jae-yong, with a Galaxy Note 7 smartphone in hand, arrives at Samsung's headquarters in southern Seoul on Sept. 21, 2016. (Yonhap file photo provided by Newspim)

Elliott also called for Samsung's operating company to be listed on a U.S. stock exchange, but Samsung officials were wary about the proposal because it makes Samsung more vulnerable to a hostile takeover bid by foreign capitals.

It was not the first time that Elliott aims to revamp Samsung. Last year, Elliott fought against a merger of two Samsung affiliates but lost the battle.

As Samsung is unlikely to fully accept the proposals, attention is being focused on what is the next move for Elliott.

Market observers expect Elliott to take the next step at Samsung's annual shareholders' meeting in March next year.

Under Korean law, an investor who has owned more than a 0.5 percent stake in a listed company for more than six months can table his or her proposal at the company's shareholders' meeting.

Images of the Samsung Electronics buildings and stock price indices (Yonhap file photo) Images of the Samsung Electronics buildings and stock price indices (Yonhap file photo)

Although Elliott's two units -- Blake Capital and Potter Capital -- hold a 0.62 percent stake in Samsung Electronics for now, they held less than a 0.5 percent stake in Samsung as of June this year.

So far, the possibility has been low for Elliott's proposals to be tabled at Samsung's shareholders' meeting on Oct. 27, when the nomination of Lee Jae-yong, vice chairman of Samsung and heir apparent of Samsung Group, to the company's board is scheduled to be approved.

But Elliott can line up its allies to bolster pressure on Samsung to accept the proposals at the next shareholders' meeting.

Andrew Gillan, head of Asia ex-Japan at Henderson Global Investors, a shareholder of Samsung, told Reuters that the fund supports the proposals by Elliott.

Kim Joon-seop, an analyst at Eugene Investment and Securities, said Elliott will try to wage a battle at the next shareholders' meeting unless Samsung sufficiently accepts the proposals.

A woman passes by the Samsung Group headquarters in southern Seoul. (Yonhap file photo) A woman passes by the Samsung Group headquarters in southern Seoul. (Yonhap file photo)

However, other analysts expect Elliott to just sell its stake in Samsung to take profits if shares of Samsung go up further.

"The purpose of Elliott is not a management engagement but high returns," said an analyst at a local brokerage.

"Now is the time for real shareholder value, corporate governance and transparency improvements, which we believe will help Samsung Electronics achieve an equity market valuation that properly reflects its first-class portfolio of businesses," Elliott said in the letter.

The proposals by Elliott came as Samsung is moving to limit the damage done by the global recall of the Galaxy Note 7 over a battery problem at a time when the younger Lee has taken key leadership roles.

In a move that deepened the woes surrounding the Note 7, an official at a supplier for Samsung said Monday that the electronics giant has temporarily suspended production of the device amid a series of media reports that some replacements have caught fire.

Samsung has encouraged owners of the Note 7 to swap their devices with new ones, but media reports said some new Note 7s in the United States, South Korea, China and Taiwan have caught fire.

(END)

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