Imminent ruling on Samsung chief gives impetus to shareholder activism

Shareholder activism at Samsung C&T has gained momentum as the court is set to rule on Monday on Samsung Electronics Executive Chairman Lee Jae-yong in a case regarding a controversial merger between Samsung C&T and Cheil Industries in 2015, according to industry officials, Sunday.

Last Friday, a group of Samsung C&T’s long-term shareholders, including ANDA Asset Management, City of London Investment and Whitebox Advisors, announced their cooperation to address a steep discount to the Korean firm’s corporate value. The company is Samsung’s construction, trading, fashion and resorts affiliate, which serves as the business group’s de facto holding firm.

Although the activist funds had separately sent letters to Samsung C&T’s board asking for enhanced shareholder value, this was the first time for them to join hands over this issue. It is unclear whether the group includes Palliser Capital, a British firm that asked Samsung C&T last year to improve its shareholder value and governance structure.

Their latest partnership is interpreted as an attempt to take advantage of a highly probable increase in the Korean firm’s spending for its shareholders after Lee avoids the risk of going to jail.

The Samsung chief, who is alleged to have pushed ahead with the controversial merger to inherit control of Samsung illegally from his father, is expected to face probation or acquittal. Prosecutors asked the court last November to sentence him to five years in prison with a 500 million won ($373,000) fine.

“Once Lee is cleared of the risk of going to jail, Samsung C&T will speed up its planned share buyback and retirement of treasury stocks, although the company is unlikely to launch a holding firm or increase dividends significantly,” Hi Investment & Securities analyst Lee Sang-heon said.

The group of activist funds, which are claimed to collectively hold stakes of more than 1 percent in Samsung C&T, asked the Korean firm to pay a 4,500 won dividend per common share and a 4,550 won dividend per preferred share. They also urged the company to allocate 500 billion won to a share repurchase program.

A few days before they made the request, Samsung C&T announced its plan to retire 1 trillion won worth of treasury stocks over the next three years in accordance with its shareholder return policy announced last year.

However, the activist funds said the company’s policy does not go far enough, although they expressed their support for the cancellation of all treasury shares.

“We also do not understand the rationale for Samsung C&T’s continuing position to dilute the impact of the treasury share cancellation by enacting it over multiple years and we disagree with the company’s characterization of this as a shareholder return,” the activist funds said.