By Yoon Ja-young
The proposed merger of Cheil Industries and Samsung C&T is reigniting speculation that Samsung Group will be restructured under a holding company system.
The two key affiliates of the country’s top conglomerate announced a plan for the merger Tuesday, in which a new entity, Samsung C&T Corp., would be launched on Sept. 1, after a general shareholders’ meeting in July.
Analysts said the merged entity would be at the center of the group realignment, functioning as a holding firm of major stakes in Samsung Electronics and other key affiliates.
“It will help the owner family maintain managerial control over the group by acquiring a stake in affiliates including Samsung Electronics,” said Park Joong-sun, an analyst at Kiwoom Securities.
Since Samsung Electronics Chairman Lee Kun-hee was suddenly hospitalized in May of last year, a smooth leadership transition from the de facto head of Samsung Group to his only son, Lee Jay-yong, vice president of Samsung Electronics, has been the main concern.
Several conglomerates in the country have adopted the holding company system because it guarantees a more stable corporate governance structure. The holding company can control major affiliates, and the owner family can continue their control over major affiliates by concentrating on their stakes in the holding company. The owner can also hand over managerial control to juniors while saving on inheritance or gift taxes.
Samsung has said that it is not considering adopting a holding company system, but analysts say chances have increased with the merger.
“Fundamentally, the new Samsung C&T Corp. will strengthen its foothold as a holding company as it holds core stakes of Samsung Group,” said Oh Jin-won, an analyst at Hana Daetoo Securities.
Some local NGOs have criticized the junior Lee for trying to succeed at Samsung Electronics while holding a mere 0.57 percent stake, but the merger would help him strengthen control over core affiliates including electronics. Lee is a major shareholder of Cheil Industries, holding 23.2 percent. Through the merger with Samsung C&T, he will secure stakes in other affiliates Samsung C&T has been holding. The new Samsung C&T will be a major shareholder of key affiliates of Samsung Group, including a 4.1 stake in Samsung Electronics, 19.4 percent in Samsung Life Insurance and 17.1 percent in Samsung SDS.
There is another version of the holding company scenario according to which Samsung Electronics would be divided into Samsung Electronics Holdings and a business company. Those supporting that scenario expect the new Samsung C&T to merge with Samsung Electronics Holdings to form a new holding company.
However, some analysts say that holding company will be too costly for Samsung. The country’s Fair Trade Act stipulates that a holding company should hold over a 20 percent stake in affiliates listed in the stock market and over a 40 percent stake in non-listed affiliates. It would cost trillions of won for Samsung to satisfy this.
Han Byung-hwa, an analyst at Eugene Securities, said increasing the new Samsung C&T’s stake in Samsung Electronics will be the first priority for the group, regardless of the scenario Samsung Group chooses. “Securing a stake in Samsung Electronics is necessary for the owner family,” he said. “No matter which of them becomes a holding company, the owner family will try to maximize the value of their stake.”