Governance Restructure
Samsung Electronics vice chairman Lee Jae-yong is to be appointed as a director of the board at its shareholders’ meeting scheduled for October 27. Then, a change in the governance structure of the Samsung Group is likely to pick up some speed.
The change is expected to be led by two sides, one being its manufacturing subsidiaries including Samsung Electronics and Samsung C&T and the other one being a financial holding company with Samsung Life Insurance at the top of it. It is likely that each of Samsung Electronics and Samsung C&T will be divided into business and investment arms and then the two investment arms will be combined with each other for the creation of the de facto holding company of the group.
It is Samsung Electronics that is at the center of the change. According to industry sources, Samsung Electronics is expected to be split into the two arms and then the investment arm is to govern the business arm of Samsung Electronics and the other electronics subsidiaries like Samsung Electro-Mechanics, Samsung SDI and Samsung SDS. Samsung C&T is predicted to undergo a similar process. In short, the integrated investment arm is to be at the top of the holding company to govern the Samsung Group’s non-financial subsidiaries such as the business arm of Samsung Electronics, the other electronics companies, its biotech companies, etc.
“Once this type of governance structure is set up, the Samsung Group owners including the vice chairman can have a tighter control of those subsidiaries in which they have less shares, such as Samsung Electronics, by means of their shares in Samsung C&T,” said an investment banking source. At present, affiliated persons have 39.36% of Samsung C&T, including the vice chairman’s shares equivalent to 17.20%, and Samsung C&T represents 4.22% of Samsung Electronics. With the vice chairman representing only 0.59% of Samsung Electronics, he is likely to make use of Samsung C&T to have a greater control of Samsung Electronics.
In the meantime, some notable events to affect the financial structures of the non-financial subsidiaries of the group are to take place around the extraordinary shareholders’ meeting scheduled for October 27. For example, Samsung SDS is to restate whether to spin off its logistics business unit on the last day of this month. Samsung Electronics is the largest shareholder in Samsung SDS with a shareholding ratio of 22.58%. Samsung SDS denied the rumor two months ago that it would spin off the logistics business unit for merger with Samsung C&T, but this scenario is still considered to be valid. A paid-in capital increase by Samsung Heavy Industries, in which Samsung Electronics is the largest shareholder, is scheduled for November and Samsung Biologics, in which Samsung Electronics has some shares, is to go public in that same month. Both the paid-in capital increase and the initial public offering are financing opportunities for Samsung Electronics. The latter, in particular, is forecast to bring Samsung Electronics approximately 823 billion won via secondary offering. Then, the money can be spent for the corporate governance structure reform.
The issue of merger between Samsung Heavy Industries and Samsung Engineering is likely to come back to the surface during the course. This is because Samsung Heavy Industries becomes capable of standing on its own to some extent through the paid-in capital increase in November and conditions related to the combination of business have become somewhat favorable since the implementation of the Corporate Vitality Improvement Special Act on August 13. “We are currently not planning on the merger between the two,” Samsung Heavy Industries president Park Dae-yeong said of late, continuing, “Still, it cannot be denied that Samsung Heavy Industries is in need of Samsung Engineering’s technology.”