Samsung stockpiling billions in cash for huge acquisition

People walk past a Samsung Electronics booth during CES 2024 in Las Vegas on January 9. [REUTERS]

Samsung Electronics is pooling billions of dollars in cash assets into its Korean headquarters as the tech giant braces for a large-scale acquisition.

In 2021, then-Samsung Electronics Chief Financial Officer Choi Yoon-ho said that a deal of “meaningful” size is coming in the upcoming three years, an initiative echoed by Vice Chairman Han Jong-hee during this year’s CES. Han said during a press event that “Samsung has been preparing for a big M&A (merger and acquisition), and I hope we could announce a plan [about the investment] this year."

The Suwon, Gyeonggi-based company unloaded its entire equity holding in Dutch chip equipment giant ASML as of the fourth quarter of last year, generating an estimated profit of over 5 trillion won ($3.8 billion) from the investment.

Back in 2012, Samsung bought a 3 percent stake in ASML for 714.6 billion won, 88 percent lower than the current value of over 6.1 trillion won.

The amount of cash and other assets readily convertible to cash held by the headquarters unit saw a steep increase last year at 10.5 trillion won ($7.8 billion) as of September, up 169 percent on year. When combined with the cash assets owned by overseas subsidiaries, the figure swells to 91.8 trillion won as of the end of last year, according to the latest audit report.

“While we can’t unilaterally conclude that the megadeal is imminent only based on the ASML shares sale and larger cash reserves secured abroad, the consensus is that cash-holding is important to buy any asset with favorable conditions,” said Jeff Kim, head of research at KB Securities.

So far, Samsung has disbursed the vast majority of its cash assets across overseas subsidiaries primarily to take advantage of favorable tax benefits and other conditions in each region, but the Korean unit started bringing in a larger amount of cash from the subsidiaries last year. Last year, it acquired an estimated 29 trillion won in proceeds from them, compared to some 3 trillion won the previous year.

“Most of Samsung Electronics’ cash assets are held by overseas subsidiaries, but the structure makes it difficult to immediately use it either as a facility investment resource or for M&A funding,” said a source at Samsung Display, a panel-making affiliate of Samsung Electronics that lent the parent company 20 trillion won last February at an interest rate of 4.6 percent.

“This is why the electronics maker chose to borrow from Samsung Display instead of tapping its own cash,” the source said.

While the target of takeover has yet to be announced, analysts and industry insiders see AI as the most sought-after area. “The target could be an AI-related entity,” said Kim, the research head. “AI has proven to be a core technology powering different hardware, so Samsung could be more inclined to AI rather than, say, robotics, a type of hardware.”

When the global chip shortage reverberated in 2020 through 2022, some raised the possibility of taking over smaller chipmakers like NXP, but the anticipation has since fizzled out due to antitrust risks and higher costs.

“The market conditions remain rough for a big deal among chipmakers,” said a source in the local semiconductor industry, adding, “Semiconductors require massive yet steady facility investment, a case Samsung is trying to avoid."

Samsung Electronics spent 48.4 trillion won for semiconductor facility investment last year, hitting an all-time high. The world’s largest memory chipmaker is upgrading and building new chip factories both in Korea and the U.S.

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