10/8/16

Samsung is likely to work with the hedge fund proposing its split than against it this time around

A couple of days ago New York-based hedge fund Elliott Associates publicly proposed that Samsung Electronics be split up into a holding and operating company as well as give shareholders a one-time dividend amounting to $27 billion from the company’s cash reserves. Elliott owns 0.62 percent of Samsung Electronics so it’s well within its rights to publicly make that demand which has also found support from countless minority shareholders. Samsung Electronics shares surged to a new record high following the proposal, but there’s more here than meets the eye. Samsung – particularly the founding Lee family – and Elliott Associates have a strained relationship after the bitter proxy battle of 2015.

We first need to get a sense of Samsung’s corporate structure to gain a better understanding of what Elliott wants to achieve and what it tried to achieve last year. The Samsung Group is a family-run conglomerate, they are commonly known as chaebols in South Korea and the country has quite a few of them, such as Samsung rival LG. There are 58 affiliates under the conglomerate’s umbrella all of which are bound together by a complex web of cross-shareholders.

Elliott’s fight with Samsung and by extension with the Lee family last year was over the proposed merger of Samsung C&T and Cheil Industries. It argued that the Lee family orchestrated this deal to consolidate their power over Samsung Electronics – which is most certainly the crown jewel of the Samsung empire – at the expense of minority shareholders. Elliott had a 7.1 percent stake in Samsung C&T at that time while heir apparent Lee Jae Yong who is also the vice chairman of Samsung Electronics and his family members owned 42 percent of Cheil Industries which itself owned just 1.4 percent of Samsung C&T.

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