Samsung deals spurred by succession pressure

Shares in Samsung SDS and Samsung Card change hands as the heir apparent works to strengthen his grip over the group.

Samsung Group announced two transactions on Thursday that highlight the growing pressure on Korea’s biggest conglomerate to speed up corporate restructuring as it prepares for dynastic change.

They comprise the partial selldown by the only son of group chairman Lee Kun-hee and chief heir apparent, Lee Jae-yong, of a Samsung SDS stake and the internal transfer of Samsung Card shares between Samsung Electronics and Samsung Life Insurance.

Lee Jae-yong has commenced corporate restructuring within the group after his father was hospitalised in May 2014. Equity transactions and mergers among Samsung affiliates have amounted to $18.3 billion since then, including the $11.2 billion merger between Samsung C&T and Cheil Industries to create an ultimate holding company for the group, according to data provider Dealogic.

In the Samsung SDS sale, Lee Jae-yong sold 2.05% of his direct holding in the company, roughly 1.59 million shares, at between W240,500 to W248,500 per share, representing a discount of 4.79% to 7.85% to the stock's Thursday close at W261,000.

The shares were eventually priced at the bottom end at W240,500 according to a source familiar with the situation, raising W382 billion ($316 million) in total proceeds. They were sold via an accelerated bookbuild offering through joint bookrunners Goldman Sachs and Morgan Stanley after the market close.

In a statement, Samsung Group said Lee will deploy the proceeds from the share sale to buy shares in Samsung Engineering’s rights issue in case the shares are not fully subscribed.

One market participant said subscribing to Samsung Engineering's right shares would also allow Lee to build direct ownership in the company, instead of owning indirect stakes through other Samsung companies. 

Lee's control of Samsung SDS is also unlikely to be unduly affected by the selldown because he retains a 9.1% stake after the sale and holds stakes indirectly through Samsung Electronics and Samsung C&T, the controlling shareholders of the IT construction and manufacturing company. 

Lee is subject to a six-month lock-up period for his remaining shares in Samsung SDS, according to a term sheet seen by FinanceAsia.

Potential merger

Despite plunging from the all-time high struck in late May 2015, Samsung SDS's share price has picked up since January 23, when Korea’s Congress agreed to the so-called “One-Shot Act”, simplifying legal procedures for mergers and acquisitions.

That has revised expectations of a potential merger between Samsung SDS and Samsung Electronics, which some analysts argue would help to strengthen Lee’s grip on the Samsung empire.

The Samsung SDS stake sale followed an earlier announcement by Samsung Life Insurance to acquire Samsung Electronics's entire $1.27 billion holding of Samsung Card shares. This transaction is widely seen as an important step to corroborate Lee’s control by building a more direct ownership in Samsung Card through Samsung Life Insurance.

That is because Lee Kun-hee's 20.76% direct holding in Samsung Life Insurance is much higher than the 3.38% stake he holds in Samsung Electronics. Assuming Lee Jae-yong inherits all the shares held by his father, who also has two daughters, he would be able to gain stronger control over Samsung Card by putting the majority of these shares under the umbrella of Samsung Life.

After the transaction Samsung Life Insurance's holding in Samsung Card will increase to 71.9% from 34.4%.

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