Samsung C&T to cancel all its treasury stock by 2028

Samsung C&T's office in Seocho District, southern Seoul [NEWS1]

Samsung C&T, a major Samsung Electronics shareholder, will cancel all its treasury stock over the next five years, the company said in a statement.

Its board of directors approved the cancelation of 24.7 million common shares and 159,835 preferred shares by 2028, according to an electronic disclosure released Thursday.

Shares to be canceled are worth around 3 trillion won ($2.3 billion) at current market prices.

Treasury shares are shares owned by the company. They pay no dividend and have no voting rights. In Korea, treasury stock is often used for takeover defense.

Following the release, the price of Samsung C&T stock jumped more than 5 percent, with the shares ending the day up 3.77 percent at 115,500 won.

The size of the cancelation is one of the biggest in Korea in recent years after Samsung Electronics canceled 40 trillion won of shares in 2017. At the time, the electronics maker came under scrutiny for its opaque corporate governance structure, and activist funds like New York-based Elliott welcomed the cancellation announcement.

“The plan was something unexpected in the markets,” said Kim Dong-yang, an analyst at NH Investment & Securities.

“Based on Wednesday’s closing price, the amount will be worth 2.8 trillion won, and the company will split them into tranches over the next five years,” the analyst said.

When all of the treasury shares are canceled, the holding by the founding family members will increase to 38.9 percent from 33.8 percent, according to Kim.

Samsung Electronics Executive Chairman Lee Jae-yong owns 17.97 percent of Samsung C&T while sisters Lee Boo-jin and Lee Seo-hyun each has 6.19 percent.

Samsung C&T is the third largest shareholder of Samsung Electronics, with a 5.1 percent stake, after Samsung Life Insurance and the National Pension Service.

The cancelation could benefit Samsung C&T shareholders even if the company overhauls its structure, according to Lee Hyun-oh, a senior analyst at Sustinvest, a financial advisory firm on corporate governance.

“Some parties raise the possibility of the company having an ulterior motive behind the decision, but it seems that the move will work positively from the perspectives of shareholder value,” he said.

“In the long run, it is inevitable for Samsung to turn into a holdings company structure, and one of the most-likely scenarios is that Samsung C&T be split and create a finance-focused holdings unit,” he said in an e-mail interview, “But when Samsung C&T holds a large amount of treasury shares, it can allocate a disproportionate amount of its own shares to a certain split company so that it could control the unit. Therefore, the cancelation eliminates the scenario where treasury shares are used as a maneuver to increase influence of founding family members.”

BY PARK EUN-JEE [park.eunjee@joongang.co.kr]