Skepticism mounts over shareholder activism at Samsung C&T

Samsung's logo in front of Samsung C&T's building in Seoul in this 2022 file photo. Newsis

Samsung C&T is drawing attention from market insiders over whether the KOSPI-listed company will accept requests from British asset management firms to improve its shareholder value and governance structure, according to industry officials, Sunday.

Last Thursday, Palliser Capital issued a press release on its proposals to remove Samsung C&T’s value gap and catalyze growth, which was announced during the U.K. hedge fund’s participation at the 10th Annual Sohn London Investment Conference.

As a shareholder, with a 0.62 percent stake in Samsung C&T, Palliser asked that Samsung Group’s complex group structure be turned into a holding company structure so as to reduce group-wide inefficiencies. In particular, the U.K. firm suggested the de-consolidation of Samsung C&T, Samsung Electronics and Samsung SDI into investment companies and operating companies, so as to merge the investment companies into a single holding company.

“Unfortunately, Samsung C&T is trading at a deep discount, signaling investor concerns over capital investment and value creation, despite good underlying fundamentals,” said Palliser founder James Smith, who previously led Elliott Management’s campaign against the merger between Samsung C&T and Cheil Industries.

Following the proposals, expectations for Samsung’s possible governance reform raised Samsung C&T’s stock price to a 52-week high of 124,900 won ($95) during last Friday’s trading session.

However, securities analysts remained skeptical of the feasibility of Palliser’s proposals.

“Most activist shareholders only own around a 1 percent stake, so they cannot bring changes unless they win the hearts of other shareholders,” said Hi Investment & Securities analyst Lee Sang-heon in a recent report.

He did not expect Samsung C&T to accept Palliser’s recent request to launch a holding firm structure.

Since Samsung C&T promised earlier this year that it would retire 3 trillion won worth of treasury stocks over the next five years, analysts believed that Samsung’s owner family is confident of consolidating their control over the group, even without launching a holding company.

Last month, another U.K. firm, City of London Investment Management (CLIM), announced that it sent a letter to Samsung C&T’s board detailing proposals for a 2023 dividend of 4,500 won per ordinary share and a 500 billion won share buyback program to run until the end of 2024.

“Since the merger of Cheil Industries and Samsung C&T completed, the company’s share price total return was -25.3 percent, an underperformance relative to the KOSPI Index of 64 percentage points. As of Oct. 31, 2023, CLIM estimates that the share price discount to intrinsic value exceeded 66 percent, representing a shareholder value deficit of over 34 trillion won,” the U.K. firm said in a press release published with a Korean law firm, Lin.

In response, Samsung C&T said its board members will review the proposals, once its business performance for this year is finalized.

There is speculation that foreign fund managers made impracticable proposals to enjoy short-term margins through a stock price hike.