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Samsung Group Rumored to Want to Sell Off Cheil Communications for ‘Choice and Focus’
Change in Succession Picture
Samsung Group Rumored to Want to Sell Off Cheil Communications for ‘Choice and Focus’
  • By Michael Herh
  • February 17, 2016, 07:45
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Samsung Group shows signs of business structure reshuffle again with Samsung SDS officially announced to spin off its logistics process outsourcing business.
Samsung Group shows signs of business structure reshuffle again with Samsung SDS officially announced to spin off its logistics process outsourcing business.

 

The Samsung Group is going ahead with the overseas sell-off of its advertisement arm, Cheil Communications. This sell-off is the third of its kind after the sell-off of its defense and petrochemical subsidiaries at the end of 2014 and the sell-off of another petrochemical subsidiary in October, 2015.

Analysts say that this move reflects vice chairman Lee Jae-yong’s “choice and focus” strategies to concentrate on its financial and electronics businesses. 

Samsung Group chairman Lee Kun-hee came down with myocardial infarction in May 2013 and allegedly has been bedridden. Since then, his son, vice chairman Lee Jae-yong has been playing the roles of the group’s chairman, enforcing the sell-off of subsidiaries twice. 

In November 2014, the Samsung Group sold Samsung Techwin (defense), Samsung Thales (defense), Samsung General Chemicals and Samsung Total (petrochemicals) to the Hanwha Group for 1.9 trillion won. In October 2015, Samsung Fine Chemicals, Samsung BP Chemicals and the Chemical Business Division of Samsung SDI were sold to the Lotte Group for three trillion won.

Earlier, vice chairman Lee Jae-yong has been clarifying his strategy of focusing on electronics and finance, two mainstays of the group. But the business world has been half in doubt about that. This is because insolvent businesses or gluts drove some Samsung Group subsidiaries to shutdowns before.    

But industry experts say that the sell-off of Cheil Communications, the number one ad agency in Korea, belongs to a different sphere from those of the military equipment and petrochemical businesses.  “This plan shows vice chairman Lee Jae-yong’s thoughts that non-core business other than electronics and finance can be decisively sold off although it can make profits now,” said an executive at Cheil Communications.   

In fact, it is known that the Samsung Group is aggressive about selling the ad agency without minding the premium of corporate control too much. In addition, despite the Samsung Group’s denials, rumors are going around that the group will sell off S One (security business) and the housing business of Samsung C&T. Within the group, nobody knew what would happen to subsidiaries and business divisions except the electronics and financial sectors, the head of a Samsung Group subsidiary said. 

Changes in business environments are also encouraging vice chairman Lee Jae-yong to stick to the “choice and focus” strategy. Over the past 40 years, Korean Jaebeol or conglomerates have been enjoyed winning streaks through business diversification. They did not mind becoming business octopuses whose tentacles reached any business items if they deemed lucrative. But many experts view that this kind of strategy does not hold any longer.

“In the past of high growth, Jaebeol could enjoy business diversifications since risk was not big,” said a Korean economic expert who studied Jaebeol for a long time. “But now, if one or two of ten businesses fail, the remaining businesses may fail. Risk has expanded, making a choice and focus more necessary.”

Another reason is related with the succession of the ownership of the Samsung Group and leadership to the third generation. “Vice chairman Lee Jae-yong thinks that not simple equities in companies but business outcomes will have his leadership truly recognized,” said an executive at the Office of Future Strategies of the Samsung Group. Vice chairman Lee may think that he can enhance a possibility of achieving business success by focusing on businesses which he can do well, while closing down the businesses subject to a high possibility of failure which his father and grandfather began. .   

Similar situations are facing other Jaebeol firms. Thus, Samsung’s new moves are expected to have an impact on the business world. 

It has been known that vice chairman Lee Jae-yong will own the electronics and financial sectors and Lee Bu-jin, the eldest daughter of chairman Lee Kun-hee, will take over hotels and distribution companies while the group’s fashion and advertisement business will be inherited to the second daughter Lee Seo-hyeon. But the sell-off of Cheil Communications goes against the picture of succession among the children of ailing chairman Lee Kun-hee.  Therefore, some changes are expected to take place in the succession picture in the future.

On the other hand, the Samsung Group is taking an equivocal attitude about the rumor on the sell-off of Cheil Communications. “There have been some foreign news reports and rumors about the sell-off of the company. But nothing is confirmed,” said a representative at the Office of Future Strategies. After the news broke out on February 16, the stock price of Cheil Communications dropped 11.59% to 17,550 won in the Korean stock market at 9:25 am on February 17.