Samsung Electronics Co shares yesterday jumped to a record high after activist investor Elliott Management Corp submitted unsolicited proposals for a radical corporate makeover at the world’s biggest smartphone maker.
An attempt last year by the US hedge fund to wring change at South Korea’s biggest conglomerate failed in acrimony, but investors and analysts said Elliott’s latest move could open the way for the founding Lee family to embrace change, cementing its grip as it negotiates succession from its ailing patriarch to the next generation and a hefty inheritance tax bill.
The approach on Wednesday by Elliott, which owns 0.62 percent of Samsung, came as the tech giant faced fresh claims of problems with its flagship Note 7 smartphone, with a report that a handset began smoking inside a US plane on Wednesday.
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Last month’s global recall of 2.5 million devices is set to show up in modest earnings growth guidance the firm is expected to report today.
Samsung said it would “carefully review” Elliott proposals for splitting the firm into a holding vehicle for ownership purposes and an operating company, as well as a 30 trillion won (US$27 billion) dividend from its US$70 billion cash pile.
Shares rose as much as 5 percent to a new record as other investors voiced support before closing up 4.5 percent.
“This came at the right time for Samsung,” Daishin Economic Research Institute analyst Ahn Sang-hee said. “It’s as if someone came and hit their cheek just when they wanted to cry. In Samsung Group’s case they have probably wanted to say something like this and now a foreign stakeholder has spoken up.”
The future of Samsung, including its succession plans, has been a matter of intense scrutiny since group patriarch Lee Kun-hee, now 74, was incapacitated by a heart attack in May 2014.
Though there have been numerous theories on how the Lee heirs — Jay Y. Lee, 48, seen as the de facto leader of the Samsung Group conglomerate, and his two sisters — will ultimately secure control of Samsung Electronics, the group’s flagship company, the family has yet to publicly discuss its plans.
Many analysts and investors believe Samsung Group will seek a “de-merger” along the lines sought by Elliott in a way that increases the Lees’ direct control of the conglomerate’s crown jewel. The family members’ combined stake in Samsung Electronics is 4.9 percent, based on a Sept. 9 filing and the firm has a market value of about US$230 billion.
Samsung declined to comment on whether it was in direct contact with US$27 billion fund Elliott on the latter’s approach.
Elliott on Wednesday said its proposal would allow the Lee family to retain its control of Samsung Electronics and also simplify the group’s ownership structure.
It was not immediately clear whether Elliott had already begun communicating with other shareholders, but some Samsung Electronics investors publicly backed the US fund’s push.
“We are supportive of restructuring and a higher dividend payout to unlock the value in the business,” Andrew Gillan, head of Asia ex-Japan at Henderson Global Investors, told reporters in an e-mail yesterday.
Henderson owns 0.12 percent of Samsung Electronics, according to Thomson Reuters data.
A spokeswoman for South Korea’s National Pension Service, the biggest investor in Samsung Electronics with a 9.2 percent stake, said it was monitoring the situation, but said it was too early to make comment.
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