Samsung to split into two firms, first in 47 years

  • Samsung to split into two firms, first in 47 years

Samsung to split into two firms, first in 47 years

Samsung Electronics would then return more capital to shareholders, investors say.

The South Korean technology giant said in a statement that it has hired external advisers for a review that is expected to take at least six months, Reuters reports.

Considering that multinational information technology (IT) companies such as Apple and Intel are making quarterly dividends, Samsung Electronics's quarterly dividend payment seems to be aimed at securing support from foreign shareholders.

"We view the plan outlined by Samsung to be a constructive initial step", said Blake Capital and Potter Capital, affiliates of Elliott Management in a statement on Wednesday. Given the 36 percent increase of the company's dividend payout per share this year, the family owners' dividend gains would reach a record high of nearly 200 billion won.

Elliott called the firm's Tuesday proposals a "constructive initial step" but signalled it wanted more, suggesting Samsung will remain under pressure from the U.S. fund.

Samsung has been under pressure since Elliott, which owns a 0.62 percent stake in Samsung through its two entities, made a detailed proposal in October that calls for the Korean company to improve governance structure and shareholder value. Samsung's shares closed Wednesday at the equivalent of $1,496.74 United States dollars, up 4.2% on the day.

Investors and analysts have long suspected that Samsung Electronics will move to split itself into an ownership company and an operating company as part of a complicated set of steps to boost Jay Y. Lee and other Samsung Group founding Lee family heirs' control of the conglomerate's top company.

Samsung pledged to return 50 percent of free cash flow to shareholders for 2016 and 2017, falling short of Elliott's call for 75 percent to be returned and to pay a US$26 billion special dividend.

Samsung executives did not elaborate on the restructuring in a conference call on Tuesday. The rest of the allocated total cash return will be used to buy shares starting at the end of January.

"We are not going to discuss about merging a holding company with Samsung C&T." said Samsung Electronics.

Samsung said it will use 50 percent of free cash flow in shareholder returns for this year and next, indicating a return of about 9.5 trillion won ($8.1 billion) in 2016. Samsung completed a share buyback worth 11.3 trillion won earlier this year.

The US firm also called for an increase in share dividends, the addition of new independent board members and a listing in NY.

The scandal saw the Samsung group's headquarters raided by authorities multiple times and several top managers including Lee Jae-Yong summoned to answer prosecutors' questions. Its annual cash dividends, which were about 1.2 trillion won (US$1.08 billion) in 2012, rose to almost three trillion won (US$2.7 billion) in 2011 despite a crisis of falling business performances in 2014 and exceeded three trillion won (US$2.7 billion) past year.

"The outside directors recommended by Elliott are likely to be very independent from the current board, thus we can expect monitoring inside and outside of Samsung Electronics to strengthen, " said Cho Sung Ick, a fellow focused on industry structure at the Korea Development Institute. "In 2017, the global economic outlook will remain uncertain and the competition in key products will continue to intensify but we will continue to invest".