Management Inheritance
As Cheil Industries and Samsung Construction & Trading (C&T) have announced a merger, Samsung Electronics Vice Chairman Lee Jae-yong is likely to finally inherit the management rights of the group. This merger will strengthen Lee’s control over Samsung Electronics, the biggest subsidiary of the group. Also, it will greatly simplify complicated cross-shareholding links so that there will be no problem for him to exercise his influence over the group as a whole.
However, there still remain problems for him to completely take over from his father. First, there is the issue of his stake in Samsung Electronics. Vice Chairman Lee holds major shares in Cheil Industries. Once Cheil Industries merges with Samsung C&T, which holds a 4.1 percent share in Samsung Electronics, Lee’s shareholding in Samsung Electronics will reach a combined 8 percent, which includes 3.38 percent of his father and group Chairman Lee Kun-hee’s shares and 0.57 percent of his own shares. Considering the size of Samsung Electronics, which market capitalization surpasses 200 trillion won (US$181.03 billion), Lee can practically exert control over the group with such shares, industry sources say.
The problem is that there is a possibility that Lee’s voting rights can be restricted in the future according to the revision of the Act on the Structural Improvement of the Financial Industry. This is because the major shareholder of Samsung Electronics is Samsung Life Insurance, which is a financial corporation, with 7.2 percent. In some senses, Vice Chairman Lee needs to reinforce his grip on Samsung Electronics. In light of this, the next possible scenario will be the merger between Samsung Electronics and Samsung SDS. Since Lee holds an 11.25 percent share of Samsung SDS, he can expect to naturally increase his shares of Samsung Electronics, though there will be a change according to the percentage of the merger. An official from the stock industry said, “Lee can always throw out the card of the merger of Samsung Electronics and Samsung SDS.”
Also, many think that the company system separation between Vice Chairman Lee and his younger sisters, Hotel Shilla CEO Lee Bu-jin and Cheil Industries President Lee Seo-hyun, is another problem to be solved in the long term. A senior official from Samsung Group commented on this by saying, “The group system separation between them is not discussed at all at the moment.” However, various possible scenarios are already being brought up in the economic world.
In this regard, some believe that Vice Chairman Lee will be in charge of the core sector, including the electronic and financial sectors, while CEO Lee Bu-jin and President Lee Seo-hyun will be in charge of the distribution and construction sectors and the fashion sector, respectively.
However, experts say that the business division between them will be possible only after the group secures the stable management structure of its subsidiaries, including Samsung Electronics, through a united Samsung C&T. Professor Kim Woo-chan at Korea University Business School said, “For the stable governance structure of the group, the Lees should put their stock holdings together as much as possible right now. The business division between them can be carried out after at least several years, when such work is completed.” Moreover, there is a dominant view that the Lees are less likely to take action for now, because the market conditions of the construction, distribution, and fashion industries are dull due to the economic slump.