Samsung follows through on corporate reform proposals

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Samsung follows through on corporate reform proposals

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Samsung Electronics vowed Tuesday to boost this year’s dividend payments 30 percent over a year ago to 4 trillion won ($3.42 billion) and to unveil a corporate governance overhaul in six months.

The de facto holding company of Korea’s top conglomerate also promised to explore the possibility of dividing itself into a holding company and operating company - the first time it has addressed the issue of a holding company structure.

But the tech giant is “not planning to review merging the holding company with Samsung C&T at all,” said Lee Sang-hoon, president and chief financial officer at Samsung, in a conference call.

Shares of Samsung Electronics remained unchanged at 1,677,000 won, but Samsung C&T slumped as much as 8.63 percent to end at 127,000 won on Tuesday.

The company also laid out plans to expand share repurchases and cancellations starting in January; to name at least one new independent board member with international corporate experience at a March shareholders’ meeting; and to create a new Governance Committee comprised solely of independent board members.

Regarding listing on a U.S. stock exchange, which Samsung has been reviewing for the past several years, the company said it will consider the option after it concludes a review of the holding company conversion scheme.

“Today’s announcement extends the actions we initiated last year and represents the next phase in the evolution of our shareholder policy and governance,” said Kwon Oh-hyun, vice chairman and CEO of Samsung.

Analysts had a upbeat reaction, foreseeing “positive results” in the long term.

“Samsung definitely has a low price-earnings ratio compared to its peers around the world,” said Lee Seung-woo, an analyst with IBK Investment and Securities. “That issue will naturally be tackled as Samsung tries to administer governance reform.”

The announcement came in response to “value enhancement proposals” U.S. hedge fund Elliott Management Corporation made in early October. They included paying shareholders a special dividend of 30 trillion won and the separating of Samsung Electronics into a holding company and an operating company and combining the former with Samsung C&T.

The merger was intended to facilitate the succession process of Samsung Electronics Vice Chairman Lee Jae-yong, who is a top shareholder of the builder but owns a mere 0.59 percent in Samsung Electronics.

Notable is the fact that Samsung gave a six-month review period for any change to its governance systems.

“Samsung will have to divide all assets, including cash, to adopt the holding company structure, and under Korean law we will also have to either newly purchase or get rid of all the shares we own in affiliates,” said Robert Yi, head of investor relations at Samsung. “The tax issue is extremely complicated and we have to go through all of the procedure comprehensively, which will take a lot of time.

“We will come up with answers to shareholders as soon as the review is over, even though we don’t think it will take as long as six months.”

Aside from the complexities, this isn’t the optimal time for Samsung to proceed with a corporate overhaul. Vice Chairman Lee is scheduled to appear at a parliamentary hearing on Dec. 6 to be questioned on Samsung’s role in the ongoing presidential corruption scandal, and lawmakers have proposed an array of bills that may hinder the company’s reform plans.

The company made the fresh revelation Tuesday that it needs to maintain a net cash balance of 65 to 70 trillion Korean won - based on its historical and expected capital expenditures, working capital requirements, M&As and other financing needs - to achieve its business objectives.

BY SEO JI-EUN [seo.jieun@joongang.co.kr]
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