Samsung to carry out biggest buyback ever

The nation’s biggest family-owned conglomerate is making it clear that it is speeding up its succession.

After surprising the local market Wednesday with its biggest deal in 17 years - selling off its nonessential defense and chemical businesses to another family-owned conglomerate, Hanwha - it immediately announced a buyback of its own stock. The move could further strengthen the power held by Chairman Lee Kun-hee’s successor and Samsung heir apparent, Jay Y. Lee.

On Thursday, Samsung Electronics’ stock on the main bourse ended 5.25 percent higher at 1.26 million won ($1,146), the sharpest increase the nation’s biggest tech company has seen in a month.

It even surged by nearly 8 percent at one point during the day, biggest growth in almost six years.

The rush of sudden investment was fueled by Samsung’s decision to buy back its own shares.

Samsung Electronics late on Wednesday stated in a regulatory filing that it would buy back 2.2 trillion won worth of its own stock before Feb. 26 next year.

Not only is it the first buyback by the company in seven years, it is also the largest.

Samsung Electronics also bought its own shares in 2002, 2005, 2006 and 2007. But those buybacks were for less than 2 trillion won - the most the company spent was 1.9 trillion won in 2005.

The market interpreted the decision as Samsung staying true to its promise that it would seek bigger returns for its shareholders. Investors have been calling for higher returns amid declining profitability particularly from the tech giant’s smartphone business.

The company said it will buy back 1.65 million common shares and 250,000 preferred shares in order to stabilize share prices and enhance shareholders’ value.

Samsung’s stock value has fallen by more than 12 percent this year due to its poor quarterly performances. The company’s third-quarter operating profit was cut by more than half to 4 trillion won compared to a record high of 10 trillion won during the same period last year.

The local brokerage market estimates Samsung Electronics’ operating profit for this year will amount to 24.4 trillion won, about 35 percent less than the 36.8 trillion won it reported last year.

But the buyback decision seems to have confirmed the market’s speculation that Vice Chairman Jay Y. is preparing to take over at Samsung.

Speculation began last August that Samsung Group was planning to convert its governance structure to a holding company through buying back roughly 4 million of its shares.

At the time, ruling party lawmakers were pushing for legislation that would lessen the power of financial companies’ voting rights in nonfinancial companies.

The legislation would have limited the voting rights of Samsung’s financial units including Samsung Life Insurance and reduced their involvement with Samsung Electronics.

This led to speculation that Samsung wanted to create a holding company structure that would require stock buybacks in order to strengthen its governance. Samsung executives denied the rumors.

Although the shares that will be bought back don’t come with voting rights, it will amplify the Lee family’s control.

The succession of Jay Y. is said to have been planned for years and there have been clear signs that the junior Lee has been taking a more significant role within the organization.

Although Samsung has denied Jay Y.’s role in the sell off of its defense contractor and chemical companies - Samsung Techwin and Samsung General Chemicals - announced on Wednesday, the market has speculated that the deal was the work of Jay Y. and Kim Dong-kwan, the heir to Hanwha Group and chief commercial officer of Hanwha SolarOne. Lee and Kim are both Harvard alumni and are third-generation owners of their family businesses. It is rumored that Kim met with Jay Y. to seal the deal. Hanwha was the first to approach Samsung in selling its defense and chemical business.

Meanwhile, Samsung said it is not planning to sell off other affiliates. Instead, it said it will focus on mergers and acquisitions aimed at enhancing its core businesses in IT.

Most of the corporate restructuring undertaken by Samsung since late last year seemed to be going smoothly except for the merger between Samsung Heavy Industries and Samsung Engineering, which came to a screeching halt when shareholders’ asserted their buyback rights after the two companies’ stock value fell.

But all eyes are still locked on Samsung Group as the conglomerate prepares to announce its annual personnel reshuffling, which is expected next week.

There are suspicions that Jay Y. will be promoted to chairman of Samsung Electronics and Yoon Boo-geun, Samsung Electronics CEO of consumer electronics, is expected to be put in charge of the company’s smartphone business.

Currently there are 55 CEOs at Samsung Group affiliates, including its flagship Samsung Electronics.

BY LEE HO-JEONG [ojlee82@joongang.co.kr]