Samsung promises a response to hedge fund

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Samsung promises a response to hedge fund

Samsung Electronics is expected to unveil measures to boost shareholder values - possibly including splitting itself into two entities - today in response to proposals regarding its ownership structure from U.S. hedge fund Elliott Management Corporation earlier.

The tech giant said in a regulatory filing Monday it has been looking into “various ways to resuscitate shareholder value on a mid- and long-term and will make related announcements in a conference call at 9:30 a.m. Tuesday.”

The filing came as an answer to a request from the Korea Exchange to confirm an exclusive report on Sunday from the Seoul Economic Daily that Samsung’s board of directors would announce today dividing the flagship firm into holding and operating companies. Samsung refused to comment on such a corporate overhaul.

Shares of Samsung Electronics closed 1.64 percent higher at 1,677,000 won ($1,433) on Monday.

The spin-off scheme is part of an array of “value enhancement proposals” Elliott made in early October. Under the plan, the holding company would merge with Samsung C&T, a construction arm, to gain aggregated holdings in both a separately listed operating company and Samsung Life. Samsung Electronics Vice Chairman and de facto commander-in-chief Lee Jae-yong is top shareholder of Samsung C&T.

Samsung said in a conference call on Oct. 27 that the company was reviewing “the entire proposal” made by Elliott on a major corporate makeover and will respond with “broad directions” by November.

Other suggestions from the activist investor include listing the operating company on the Nasdaq; paying out of 75 percent of the operating company’s cash flow as dividends; and the addition of at least three “truly independent” directors to the boards of both holding and operating companies.

Many observers had speculated that the splitting of Samsung was the most plausible scenario, given it is the best possible option for Lee to beef up his control of the top conglomerate. Other proposals are much less realistic - paying out a hefty dividend of 30 trillion won, in particular, analysts said.

Samsung’s situation has drastically deteriorated since Elliott’s offer as prosecutors launched a probe into its role in the corruption scandal surrounding President Park Geun-hye and her confidante Choi Soon-sil. That followed the massive recall and discontinuation of the faulty Galaxy Note7 phablets that seriously dented Samsung’s reputation as the top smartphone producer.

But some speculation says that Samsung may not disclose detailed plans today.

“When considering the situation we are now in, reviewing Elliott’s offers isn’t our top priority,” said a Samsung executive. “We are closely monitoring the flow.”

“Samsung is expected to end up showing its standing on its governance structure issue on a theoretical level,” said Lee Sang-heon, an analyst at Hi Investment and Securities. “But Samsung simply mentioning its plan to ‘change’ would be quite meaningful.”

Prosecutors are looking into whether the Blue House coerced the National Pension Fund to approve a merger between Samsung C&T and Cheil Industries last year in return for Samsung’s 20.4 billion won donations to two foundations allegedly established by presidential friend Choi.

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