Samsung SDI must sell holding company stake

The Fair Trade Commission announced Thursday that Samsung SDI will have to sell its stake in Samsung Group’s de-facto holding company Samsung C&T.

Samsung SDI owns 4 million shares of Samsung Group’s construction arm, worth about 500 billion won ($460 million) at current values. Samsung C&T closed Thursday at 127,000 won per share, down 2.68 percent from the previous day.

The FTC came to the conclusion that a new cross-shareholding structure was created after the merger of Samsung C&T and Cheil Industries on Sept. 1, 2015, making Samsung SDI’s investment illegal.

In December 2015, the FTC ordered Samsung SDI to sell 5 million shares (a 2.6 percent stake) of the 9 million shares it owned in Samsung C&T because of reformed regulations on cross-shareholdings that were enacted in July 2014. It allowed it to retain the 4 million.

It appears that ruling was the result of pressure by the Park Geun-hye Blue House on the FTC.

Before the 2015 merger, the cross-shareholdings within Samsung Group was more complicated. Samsung SDI had stakes in both Samsung C&T and Cheil Industries, but the two affiliates didn’t have a direct connection. After the merger, the structure was simplified to allow Samsung SDI to have more control. The FTC saw this change at the time as only strengthening Samsung SDI’s influence on Samsung C&T.

A new interpretation makes the remaining stake illegal under the new regulations of 2014.

Samsung SDI will be given six months to sell its remaining stake in Samsung C&T.

FTC Chairman Kim Sang-jo said Thursday’s decision was not a retroactive decision, but a correction of a misinterpretation of the past.

“The regulation on cross-shareholding is the same today as when Samsung [affiliates] merged,” Kim said.

When asked if the FTC's about-face from its decision two years ago would hurt its credibility, Kim said it would not and might give the public more trust since it is correcting a past mistake.

“We will continue to pursue our social responsibility and regain the public trust,” Kim said.

When Samsung Group de-facto CEO Lee Jae-yong was investigated by special prosecutors last May, it came out that the Park Geun-hye Blue House pressured the FTC to reduce the number of shares that Samsung SDI should sell from 9 million to 5 million shares. A court in August concluded that Samsung had successfully lobbied the Blue House to put pressure on the FTC.

Although the FTC’s decision is likely to affect the cross-shareholding investment structure of Samsung Group, it is unlikely to have a huge impact on the immediate governance of the owning family, particularly Lee Jae-yong.

While Samsung C&T is acting as the holding company, the core of Samsung Group is undoubtedly Samsung Electronics.

Lee currently controls Samsung Electronics via Samsung C&T as he owns 17.2 percent stake of the construction affiliate.

Samsung C&T owns 4.25 percent stake in Samsung Electronics.

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