Samsung halts new deals after leader’s arrest

Samsung Electronics, the world’s largest smartphone manufacturer, has effectively stopped all mergers and acquisitions and new investments following the arrest of its de facto leader, industry sources said Sunday.

The lack of effort to expand its business reach and allocate resources in a timely manner could affect the company’s ability to respond effectively to change that could hurt the company’s overall competitiveness, the observers said.

The lack of business investments is particularly noteworthy since the tech giant may have achieved the second-highest operating profit in the first quarter of this year on strong demand for memory chips.

Operating profit is estimated at 9.9 trillion won ($8.6 billion) in the January-March period, compared with 6.68 trillion won posted a year earlier, the tech giant said in its regulatory filing last week. If the number is reached, it will be the second-highest quarterly gains for the company.

Samsung’s vice chairman Lee Jae-young has been in jail for about two months after being implicated in a massive corruption scandal that led to Park Geun-hye being removed from the presidency. The former president also has been detained on corruption charges, along with her close friend Choi Soon-sil, who is accused of having peddled influence for personal gains.

Lee has been “running” Samsung Electronics and other affiliates in Samsung Group, Korea’s top chaebol, for the last three years since his father was hospitalized after a heart attack.

Samsung under the junior Lee has engaged in numerous M&As and takeovers since May 2014, with the purchase of U.S. audio and automotive electronics firm Harman International Industries Inc. for a record 9 trillion won in November getting considerable news coverage.

Besides stopping all takeovers, Samsung has put the brakes on switching the chaebol into a holding-company arrangement that is more transparent and accountable to shareholders.

Other changes seen from the outside include the conglomerate discontinuing the weekly meeting of affiliate CEOs, while the command center of the conglomerate that was in charge of future planning has been disbanded since the scandal.

Insiders said that inability to make key decisions may be a natural development because all such processes went through the vice chairman.

On the other hand, while some Samsung operations have experienced confusion, corporate watchers said there are positive signs things are settling down.

“The conglomerate seems to be more inclined toward outsourcing parts and components instead of trying to keep everything in-house, which was the practice in the past,” said one source, who declined to be identified.

Others said that while there is uncertainty with no orders coming down from the group as a whole, individual affiliates are slowly moving forward by vitalizing their respective boards to make critical everyday decisions. YONHAP