New Act
The Samsung Group has to dispose of the five million shares of Samsung C&T owned by Samsung SDI by March 1 of next year in compliance with the Fair Trade Act amended in July last year to ban new cross-shareholding ties.
“Three of the 10 cross-shareholding links have been removed since the merger between Samsung C&T and Cheil Industries in September, but another three have been strengthened at the same time,” the Fair Trade Commission (FTC) explained on Dec. 24.
According to the FTC, the three links in the group that are related to that between Samsung SDI and Samsung C&T have been strengthened since the merger, as Samsung SDI has increased its presence in the group by means of its shares in Samsung C&T and Cheil Industries. Under the circumstances, the FTC told Samsung SDI to dispose of the five million Samsung C&T shares, equivalent to 2.6 percent of the total, by March 1 so that its power will be reduced to the previous level. At present, Samsung SDI represents 4.7 percent of Samsung C&T.
The key is when and how. Those in the business community say that a significant impact is likely to ensue the entire market as well as the Samsung Group when it goes by the principle as told by the FTC. A block deal can be an easy option, but it is sure to have a substantial impact on the market, while it is doubtful that Samsung will be able to find its white knight on such short notice.
It is said that the top management of the Samsung Group is embarrassed by the demand, as it already went over the cross-shareholding problem during the course of its governance structure overhaul process that took years of time. Still, it is also feeling relieved on the other side because the instruction was previously predicted and the other key links can remain intact. Furthermore, the FTC’s demand is not compulsory.
The owners of the group can maintain their control over Samsung C&T, which is the de facto holding company of the group, as well. Samsung Electronics Vice Chairman Lee Jae-yong is currently in possession of 16.4 percent of Samsung C&T, and Hotel Shilla President Lee Bu-jin and Samsung C&T President Lee Seo-hyeon both has 5.47 percent each. The shareholding ratio goes up to 30.18 percent when Samsung Group Chairman Lee Kun-hee’s shares are added. This means that the disposal of the 2.6 percent of shares cannot affect their control.
What they are concerned about is the impact that can be left when the shares are put on the market in a lump. The five million shares are worth more than 700 billion won, and the demand and supply balance can collapse at least for a short while. The price of Samsung C&T shares has fallen quite a lot since the merger in September, closing at 145,500 won per share on Dec. 24.
It is thought that this is why Samsung asked the FTC to allow a postponement that day. The organization spent four months reaching the final decision and only a couple of months are left for Samsung until the due date. “In general, a block deal for stock disposal requires three to four months of examination at the least, with the deal itself kept secret, but this case is already known and the time is running out for Samsung, meaning Samsung is not at a vantage point,” said an industry insider, adding, “That being so, negotiators can take advantage of the fact that Samsung is pressed for time.”
This is why it is said that Samsung will resort to a white knight instead of the block deal, or the vice chairman himself will purchase a number of the shares. One of the candidates of the white knight is KCC, which bought 8.99 million treasury shares of Samsung C&T at 674.2 billion won in June this year during the conflict between Samsung C&T and Elliott Management. If the vice chairman chooses to buy the shares, he can better control the group in an even more responsible way.