ON the back of strong first-quarter profits report, Samsung Electronics Co. announces it would not be bowing to pressure by activist investor Paul Elliot Singer to transfer to a holding company structure.
The chaebol – a Korean term for a large conglomerate, usually owned and managed by a single family – released its report this week, with welcome news it had solidly beaten analysts’ estimates on the returns from their smartphone and component manufacturing businesses. The company claimed a quarter net income of KRW7.49 billion (US$6.7 billion), beating analysts’ predictions by 10.6 percent.
It also released news its first quarterly dividend of KRW7,000 (US$6.20).
Samsung sees best quarterly profits in three years https://t.co/GdDny4Rdwg
— DGFootball (@DandGfootiePod) April 27, 2017
After the report was released, analysts were unanimous in the claim the adoption of a holding company structure would not enhance Samsung’s competitiveness, not to the surprise of shareholders.
“Many shareholders to a degree had also expected the holding company bid would not become a reality,” said Lee Jae-yun, a Yuanta Securities Co. analyst, to Bloomberg.
Back in October, Elliot’s company sent a 10-page letter to Samsung’s directors that pushed them to initiate a restructuring exercise, in an attempt to “inject American-style activist investing into the world of Asian business, where families often retain control of huge publicly traded companies”, according to the New York Times. The proposals by the wealth management company were aimed at closing the steep valuation gap between the shares of Samsung and its closest rivals.
“Samsung Electronics has done an impressive job of building a first-class portfolio of businesses which have made it Korea’s flagship enterprise and one of the world’s most important technology companies,” the letter said.
“At the same time, however, Samsung Electronics’ shareholders have suffered from the long-term undervaluation of the business by the equity market.”
“Now is the time for real shareholder value, corporate governance and transparency improvements, which we believe will help Samsung Electronics achieve an equity market valuation that properly reflects its first-class portfolio of businesses,” said a spokesman for Elliot Management back in October 2016. “We sincerely hope Samsung will seize this opportunity.”
Elliot is not entirely wrong to be calling for higher dividends from the electronics giant. Samsung has regularly cited an unfavorable “legal and regulatory environment” as the reason for deflecting calls to operate as a holding company. The infamous Lee family has held control over the chaebol for decades, and has remained resistant to the furor over its rigid, closed ranks.
However, a pall is hanging over the company as the company’s vice-chairman and de facto leader, Jay Y. Lee, is standing trial in detention for accusations of influence peddling. Rumors of Samsung’s bullying demeanor have long pervaded the South Korean business scene, but it’s likely the young Lee’s trial in a scandal-allergic South Korea lies at the heart of Elliot’s call for structural reform.
The chaebol might also face impending pressure as South Korea prepares to head to the May 9 polls to replace deposed president Park Geun-hye.
The company has said it would look into ways and means of weeding out corruption and systemic failure that has resulted in persistently low dividends.
Samsung’s share prices gain a boost from the generally positive response to the unveiling of its flagship Galaxy S8 handset and news that it would re-release refurbished versions of its explosive Note 7. Word is that pre-orders of the S8 and its larger 8+ model have beaten all previous records. Shares were reported to have experienced a huge hump after the news Samsung would retain its current structure despite last year’s PR crises.
The report also detailed Samsung’s mobile unit had locked in KRW2.07 trillion (US$1.83 billion) in operating profits, while the chips unit totaled in at KRW6.31 trillion (US$5.6 billion). The display and consumer electronics businesses registered earnings of KRW1.3 trillion (US$1.15 billion) and KRW380 billion (US$336 million) respectively.
Total operating profit for the year came in at a staggering KRW9.9 trillion (US$8.8 billion), as predicted earlier this month.