Think of the Shareholders

 

Amid robust earnings in the third quarter of this year, Samsung Electronics began to implement shareholder-friendly policies including a buyback of 11 trillion-plus-won share buyback which is the biggest ever.

It is said that Lee Jae-yong, vice chairman of Samsung Electronics advocating pragmatic management, created momentum to dispel concerns that Samsung Electronics has not responded to shareholders’ demand and turn the basics of his management to shareholder-friendliness.

The tech giant announced on Oct. 29 that it will purchase its shares of 11.3 trillion won and retire all of the stocks shortly after announcing its third quarter earnings on Oct. 29. Before this plan, Samsung Electronics’ biggest share buyback of its stocks was a set of three buybacks of its stocks which totaled 4,821.7 billion won in 2004.

This buyback and retirement of its stocks came on the heels of an internal judgment that the stock price of Samsung Electronics was too undervalued compared to the company’s value. Moreover, it was later said that the electronics giant took into consideration the fact that the largest-ever buyback and retirement will greatly contribute to the enhancement of shareholder value.

Samsung Electronics is planning to buy back its stocks at the stock market and cancel them three to four times for one year from now. Therefore, on the day, the company’s board of directors set the volume of the buyback at 4.2 trillion won and decided to buy back 223 common stocks and 1.24 million preferred stocks for three months beginning on Oct. 30. The reason why the proportion of preferred stocks was set at 35 percent in the first buyback is that the preferred stocks were traded at a price 22 percent lower than common stocks on the day before the board’s resolution day.

In the future, Samsung will maximize the volume of its share buyback by elevating the percentage of a buyback of its preferred stocks when the price of its preferred stock is ten or more percent lower than the price of its common stock.

“The cancellation of our own stocks will accomplish the expansion of the effects of a hike in the dividend per share,” said a representative at Samsung Electronics. Samsung also announced a shareholder return plan for the next three years. The company unwrapped its idea to return 30 percent to 50 percent of its free cash flow in the type of dividends or via stock buybacks.

Notably, he added that the company will implement shareholder returns with its focus on dividends but remaining funds, if any, will be used to buy back and retire its stocks. Furthermore, the company is also considering introducing a quarterly dividend system next year.

 

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