Samsung removes cross-shareholding at holdco level

Korea’s largest conglomerate creates a linear shareholding structure under Samsung C&T after two affiliates sold their last batch of shares in the company in a $833 million block trade.

Samsung Group, the mighty South Korean conglomerate best known for its smartphones, has responded to calls from the government to improve corporate governance by eliminating its final two reciprocal cross-shareholdings at the holding company level via a secondary share sale.

Thursday’s transaction saw Samsung Electro-Mechanics and Samsung Fire & Marine Insurance sell their entire stakes in Samsung C&T, the de facto holding company of the Samsung Group, for a combined W930 billion ($833 million) through an after-market block sale of shares.

Samsung Electro-Mechanics sold 5 million shares in Samsung C&T for $547 million while Samsung Fire & Marine Insurance sold 2.6 million shares for $286 million, the two companies said in separate filings on Friday. Altogether, the 7.62 million shares represented about 4.02% of Samsung C&T’s existing share capital.

Both companies sold the shares at W122,000 each, the highest-end of the W118,000 to W122,000 indicative price range that represented a discount of 5.1% to Samsung C&T’s W128,500 Thursday close.

Joint bookrunners of the block trade were Citigroup, Credit Suisse, Morgan Stanley and Samsung Securities

The deal marks an important step towards improving Samsung Group’s opaque corporate structure by unwinding the cross-shareholding ties between two groups of listed companies, thus creating a linear shareholding structure with Samsung C&T as the holding company of the entire group.

Following Thursday’s transaction, Samsung C&T is no longer held by any Samsung affiliate.

Lee Jae-Yong, vice president of Samsung and the son of group chairman Lee Kun-Hee, is the largest shareholder with 17.23% of the company, while auto parts maker KCC Corporation and Korea’s National Pension Service own 8.97% and 5.7%, respectively.

The move to untangle the complex share ownership ties was well received by the market. Despite having priced the shares at the top of price guidance, Samsung C&T shares rose more than 2% in early Friday trade.

Samsung, South Korea’s biggest conglomerate with businesses ranging from electronics, chemicals, property, energy and communications, was instructed by the antitrust regulator to unwind the reciprocal cross-shareholdings between its affiliates after the controversial merger of Samsung C&T and Cheil Industries in 2014.

Cross-shareholding is a common practice among the large chaebols allowing the founding family to retain control without having to keep a majority stake in all the subsidiaries.

The practice has come under fire in recent years because it undermines corporate governance and prevents minority shareholders from influencing the group’s management and strategy.

THROUGH THE TOUGHEST TIME

Samsung appears to be past its worst period after de facto leader Lee Jae-yong was freed from jail earlier this year. He was sentenced to five years in August last year after being found guilty of corruption and embezzlement in a scandal that led to the removal of South Korea's former president, Park Geun-hye, but was set free after an appeal court suspended the sentence.

Samsung: world's no.1 smartphone brand

At the same time, the group retained top spot in global smartphone shipments in the first quarter of this year after losing it to Apple in the fourth quarter of last year, according to advisory firm Gartner.

Shares in Samsung Electronics, which are often seen as a bellwether for the wider group’s performance, are off their November record-price highs above W55,000 but have held steadily above W45,000 for much of the last 18 months. 

That is broadly double where the stock price traded following the Samsung C&T/Cheil Industries merger four years ago. However, the group is still embroiled in a nasty dispute between minority shareholders and the government as a result of that merger.
 
Earlier this month, Hong Kong-based hedge fund Mason Group joined activist fund Elliott Management in demanding as much as $1 billion from the government over financial losses in the merger.

Samsung narrowly forced through the merger against dissenting minority shareholders after securing key votes from the National Pension Service. The pension fund is alleged to have voted in favour of the merger under the instruction of former president Park Geun-hye, who received $7.8 million in bribes from the group.

¬ Haymarket Media Limited. All rights reserved.