Samsung in quandary ahead of shareholder meeting

Following the permanent withdrawal of its fire-prone smartphone, Samsung Electronics Co. seems to be in a fix over how to placate investors in the global tech giant at an upcoming shareholders meeting, industry sources said Friday.

Sending shock waves through the tech industry, Samsung decided Tuesday to suspend production of and pull the plug on the Galaxy Note 7 after failing to resolve the smartphone's battery-fire problem. The episode wiped tens of billions of dollars off the company's market value, raising fears it could dent consumer confidence in other Samsung products.

Samsung is scheduled to hold a special meeting of shareholders on Oct. 27 to approve the nomination of Vice Chairman Lee Jae-yong, the only son of its ailing chairman, to join its board of directors. The 48-year-old Lee was nominated to join the board last month, which is subject to approval from shareholders.

Despite a series of friendly messages from key shareholders, Samsung doesn't appear to have "an ace up its sleeve" to appease them as it has already reflected the loss from the Galaxy Note 7 termination on its balance sheet, according to the sources.

Shortly after the stock market closed Wednesday, Samsung said in a regulatory filing that it has cut its operating profit for the July-September period to 5.2 trillion won ($4.7 billion) from an earlier estimate of 7.8 trillion won made a week ago, to reflect the cost for the smartphone's recall.

Samsung's loss from the permanent withdrawal of the latest smartphone, which was billed as "a potential iPhone killer" after its launch in August, is estimated to reach at least 3.6 trillion won.

In light of the loss, Samsung appears to be in no position to expand dividends to shareholders, as demanded by United States hedge fund Elliott Management, watchers said. Last week, the activist fund demanded Samsung split itself into holding and operating firm, pay a special dividend and to list its operating company on NASDAQ.

"At the moment, Samsung is not in a situation to come up with proper shareholder-friendly policies as the company announced a massive share buyback plan last year," a Samsung official said.

In late October last year, Samsung unveiled a plan to buy back 11 trillion won worth of shares in an effort to boost its share price.

Samsung's trouble comes amid friendly gestures from major shareholders. Shortly after Samsung announced its decision to kill the Galaxy Note 7 for good, Elliot said through its two units that it still considers Samsung as the best brand in the world, hoping that Samsung's current crisis will lead to an improvement in its operation and governance structure.

In addition, U.S.-based Institutional Shareholder Services Inc. (ISS) recently advised Samsung shareholders to vote for Lee's nomination to its board of directors. Last year, ISS, a global advisory firm to global hedge funds and institutional investors, objected to the merger of Samsung C&T Corp. and Cheil Industries Inc.

Korea's National Pension Service (NPS), the single biggest shareholder of Samsung and the country's largest institutional investor, expressed intention Thursday to vote in favor of Lee's nomination.

Some watchers said Lee, who is tipped to be nominated to the board, should announce his stance on the Galaxy Note 7 incident in person, as Apple CEO Tim Cook did in the past in the face of consumer complaints.

In June last year, Lee offered an apology to the nation over a massive outbreak of Middle East Respiratory Syndrome at a group hospital in Seoul. (Yonhap)