Thwarting Elliott could benefit Samsung: US analyst

By Kim Yoo-chul

If Samsung Group prevails over Elliott Associates, it will emerge stronger on its business front, which could eventually prove beneficial to shareholders, according to a U.S. analyst. But that could come at the expense of short-term profits.

"If Samsung heir Lee Jae-yong turns out to be a good leader, it will be better for Samsung,” Srini Sundararajan, an analyst at Summit Research Partners, told The Korea Times.

“In addition, one Samsung may become stronger than even Apple, Intel and Qualcomm combined, internationally, giving an advantage to Korea in its competition with Taiwan in the electronics business," he said.

Stressing Samsung's success in cutting its reliance on Qualcomm processor chips in the Galaxy S6 and S6 Edge, Sundararajan said: "One Samsung will improve its management efficiency and create synergy with group affiliates."

"If Samsung Electronics remains one company, then they don't have to justify awarding the application processor business to its own Exynos. However, if Samsung Electronics were two companies, one for mobile and one for semiconductors, then the selection process would have to be justified," he said.

A successful merger could have other results, according to his analysis.

"A combined Samsung C&T and Cheil Industries will become a 51 percent stakeholder in Samsung Biologics, which is an area that Samsung wants to concentrate on,” he said.

He said the combined company would enjoy fast growth as its plan to build a big semiconductor site in Pyeongtaek would likely be awarded to the combined company.

“Both these factors might help shareholders of the combined unit attain financial rewards in the future, even if it is felt for now that Cheil Industries is underpaying for Samsung C&T," he said.

Elliott wants to change the 1:0.35 stock swap ratio of Cheil and Samsung C&T.

He said Samsung C&T would amount to $11 billion in book value, if all its holdings were combined, more than Cheil's offer of about $8 billion.

"On the surface, the motive of Elliott’s management seems to be realizing much more value from breaking up parts of Samsung into more separate companies,” he said.

"If this merger goes through, various possibilities are being talked about that may not necessarily benefit ordinary shareholders. One is a possible merger between Samsung SDS and Samsung Electronics, the other is a break-up of Samsung Electronics."

Sundararajan said Samsung's top management would reach out to major institutional investors such as the National Pension Service, which holds a 10.15 percent stake in Samsung C&T. The proposed merger will be decided at a shareholder meeting in July.

Samsung's stake in Samsung C&T increased to 19.6 percent thanks to a decision by KCC, a building materials supplier, to purchase 5.8 percent in treasury shares of Samsung C&T.

"However, that may not still be enough to fight off Elliott's challenge," Sundararajan said.