Samsung May Split Into Separate Entities: Report
South Korean electronics giant Samsung Electronics Co Ltd is reported to be considering a split into two separate companies as proposed by US activist hedge fund Elliott Management, reports Reuters citing Seoul Economic Daily. The proposal was sent across in October, by Elliott Management with a view towards adding shareholder value. The debate on the proposals, will take place in a day, when the board of directors meet to look for a path further. The Korea Exchange has also asked Samsung to comment on the issue by 09:00 GMT, and update the market about the developments.
Elliott has supposedly listed some of it’s suggestions which will now be under discussion from the Samsung board. They Samsung Electronics into a holding vehicle for ownership purposes, and an operating company. Then comes a $26 billion special dividend, take a pledge to return 75% of free cash flows to investors, and also agree to appoint independent directors.
The changes seemed to be long awaited, since the founding Lee family underwent change in control; in 2014, Lee Kun-hee who was the patriarch of the company, had a deliberating heart attack, which made him unfit for managing the affairs of the company. His son Jay Y.Lee had taken over since then, and company restructuring has been accelerated since then itself, but there have been no official from either the family or the company.
Samsung had previously sold the non-core assets, while it also pushed through the merger of affiliate entities in 2015, which were being controlled by an company run by Jay Y.Lee and his sisters. However, the founding family is now mainly looking to have a setup for smoother transfer of control. HI Investment in a report recently commented, “Even if Samsung Electronics does not comment on specifics such as the timing of a split … the firm will at least say it will implement ownership structure changes in a reasonable manner.”
However, it is expected that the round of discussions to soon take place, will clarify how the future affairs of Samsung will be controlled.
Samsung has been working on streamlining its business and getting rid of the assets which are either showing signs of slow growth or lower-than-expected sales. It has already sold off its printer division to Hewlett-Packard for $1.05 billion and is now looking to hand over its struggling PC business to Lenovo, a leader in the said industry, said the report.
Daniel O’Keefe, managing director of Artisan Partners, which holds more than 1 million Samsung Electronics shares, reported to Bloomberg, “Its governance, board and management structure is not well suited to the rapidly changing and highly competitive technology industry. Its board of directors has no truly independent members with experience in global operations, technology and capital allocation.”
According to O’Keefe, Samsung has struggled over the past few years in its mobile business, most recently with the Note 7 fiasco, and we believe there is a link between poor governance and this poor performance.
Therefore, experts believe, these changes should benefit all involved, including family, group, and minority shareholders.
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