Samsung Electronics received a restructuring proposal from US activist hedge fund and minority shareholder Elliott Associates which proposed that the company be split into two. It called for setting up an operational and holding company and listing the latter on external exchanges in order to significantly boost shareholder value.
Samsung took its time to study the proposal in detail and at its annual shareholder meeting last month said that it was not going to adopt a holding company structure for now. However, at that time, it didn’t completely rule out the possibility.
It has done that today, though. Samsung has said that the company’s Board of Directors has decided not to convert to a holding company structure.
A comprehensive review conducted with external advisors has revealed that a holding company structure will not strengthen the competitiveness of Samsung’s business and may potentially weigh on its operations in the long-term.
The review also highlighted some issues that may crop up if the proposal is to be accepted. Creating a holding company would require divestments of equity stakes held by Samsung Electronics and its affiliates. This will require approval from directors and shareholders of all relevant companies and can thus not be implemented by Samsung Electronics alone.
Existing laws will also force the company’s financial affiliates to divest part or all of their stakes. This might lead to volatility in the company’s share price. The uncertainty of the legal and regulatory environment has also been deemed not conducive to such a major change.
Samsung has thus concluded that the risks and the challenging environment associated with a fundamental change in corporate structure would not be beneficial for enhancing shareholder value and sustaining growth for the business in the long-term.
It believes that the holding company structure does not have clear benefits compared to Samsung Electronics’ current business structure.
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