By Yoon Ja-young
The Fair Trade Commission (FTC) has ruled that Samsung SDI should sell 5 million shares it holds in Samsung C&T Corporation because the holding infringes on cross-shareholding regulations.
The anti-trust regulator has been analyzing whether the cross-shareholding within Samsung Group strengthened or weakened after the merger between its two key affiliates Cheil Industries and Samsung C&T Corporation on Sept. 1.
In cross-shareholding, affiliates hold shares in each other in a circular form, such as affiliate “A” holding shares in “B,” “B” holding shares in “C,” and “C” holding shares in “A.”
Some chaebol have been using the system because their chairmen can have control over all the affiliates despite holding only a small stake. To stop this distortion, the revised Fair Trade Act has banned conglomerates from strengthening the cross-shareholding system.
The FTC determined that the merger between Cheil Industries and Samsung C&T, which gave birth to Samsung C&T, reduced the number of cross-investments within Samsung Group to seven from 10. However, it determined that cross-shareholding strengthened in three of those seven remaining circular-investments.
The regulator announced that Samsung Group should end those three circular investments, or make Samsung SDI sell 5 million shares from its stake in the new Samsung C&T Corporation.
Samsung is likely to choose the latter because it is much easier to sell stocks than to eliminate the circular investments.
Before the merger, Samsung SDI had held a 7.2 percent stake in the old Samsung C&T, and a 3.7 percent stake in the old Cheil. Samsung SDI now holds a 4.7 percent stake in the new Samsung C&T. When the 5 million shares are sold, its stake will fall to 2.1 percent.
Samsung Group said it would abide by the FTC decision. Selling Samsung SDI’s stake in Samsung C&T will not affect control over the Samsung Group by the owner family.
Samsung Electronics Vice Chairman and heir apparent Lee Jae-yong holds a 16.5 percent stake in Samsung C&T, which is a de facto holding company of the group. The total stake in Samsung C&T held by friendly forces, including the owner family, surpasses 50 percent.
But Samsung Group is likely to ask for more time. Samsung SDI has to sell the stocks by March 1 according to the law, but Samsung fears that selling so much at once may cause a shock on the stock market.
Market watchers believe the company is likely to sell stocks to institutional investors in a bloc deal to minimize shock on the stock market.