Samsung considers holding company
A visitor walks by Samsung Electronics TV screens at Korea Electronics Show in Seoul in this Oct. 26 photo. / AP-Yonhap
Total dividends to reach W4 trillion this year
By Yoon Sung-won
Samsung Electronics said Tuesday it will increase dividends for its shareholders and review a plan to create a holding company of the group.
This is the first time for the company to admit to the speculation that it is pushing for the plan to become a holding company as part of its long-term corporate governance restructuring. As the plan is in line with the suggestion by U.S. hedge fund Elliot Management, the electronics company is expected to be able to reconcile with Elliot, which as a stakeholder has actively stood against the company’s moves for the succession of business rights to Vice Chairman Lee Jae-yong.
“We plan to review optimal corporate structures including becoming a holding company in a neutral stance and will decide on detailed measures in the future,” Samsung Electronics said, Tuesday.
The company also said it will take more than six months to announce its detailed restricting plans.
“Decisions on an optimal corporate structure require long-term reviews on key issues in strategy, management, finance, tax, accounting and legal affairs,” it said. “We are working with external experts for consultation and the reviewing process is expected to take at least six months.
Aiming at promoting diversity and expertise within the board of directors, the company has also decided to recommend more than one non-executive director candidate who has worked as the CEO of a global company.
Earlier last month, Elliot Management’s subsidiaries Blake Capital and Potter Capital made four requests to Samsung Electronics: the division of the electronics maker into a business body and a holding company; thelisting of the business body of the divided Samsung Electronics on Nasdaq; the provision of 30 trillion won special cash dividends; and the appointment of three independent nonexecutive board directors.
At that time, they also urged Samsung Electronics to merge the holding company part of the divided electronics company with Samsung C&T, the group’s current holding company. Samsung Electronics, however, made it clear that it is not considering this merger now.
The company also admitted that it is considering listing on a U.S. stock market once it completes shifting into a holding company.
“We have reviewed the plan to go public on a U.S. stock market for the last few years,” Samsung Electronics’ investor relations team head Lee Myung-jin said during a conference call, Tuesday. “We believe that this may generate good marketing effects for Samsung’s brand.”
But Lee remained cautious about the impact of the company’s U.S. stock market listing, saying that “there still are great uncertainties in the long-term.”
Shifting Samsung Electronics as a holding company has been considered as one of the best options for Samsung Group’s heir Lee and the owner family to strengthen control over the conglomerate because they will be able to boost their stake on the electronics company with less expense.
According to industry sources, Samsung Life Insurance is the largest shareholder of Samsung Electronics with 7.55 percent, followed by Samsung C&T with 4.25 percent, Samsung Chairman Lee Kun-hee with 3.54 percent and Samsung Fire & Marine Insurance with 1.32 percent. Vice Chairman Lee holds a 0.6 percent stake of Samsung Electronics.
Considering that foreigners in total hold a 50.72 percent stake of the company, Samsung needs to increase its stake from its current 18.44 percent.
For this reason, expectations are that Samsung Electronics will start the division process of the company, which is one of the preconditions of becoming a holding company.
Dividend increase
Samsung Electronics also said it will increase the total amount of dividends to about 4 trillion won ($3.42 billion) this year, up 30 percent from last year’s 3.1 trillion won.
As a way to strengthen its shareholder value policy, the company said it will use 50 percent of its free cash flow for dividends in 2016 and 2017, an increase from last year’s announcement that it will return 30 to 50 percent of its free cash flow to shareholders. In this plan, the company’s dividend per share is expected to reach 28,500 won, up 36 percent from last year.
Samsung Electronics said it will need to maintain a 65 to 70 trillion won fund in cash for investments, business operations and acquisitions, adding that it will return the surplus to the shareholders. It also said it will pay the dividends in every quarter starting next year.