Improvement of Shareholder Value?
Elliott Management sent a letter to Samsung Electronics on October 5, saying that its stock is undervalued and calling for spin-off and special dividend payment.
In the letter, Elliott Management said that Samsung Electronics should be divided into a holding company and an operating company and each of the two should be listed on the NASDAQ. According to Elliott Management, this spin-off is necessary because its stock is currently undervalued. The American hedge fund also mentioned that Samsung Electronics should examine whether the holding company can be merged with Samsung C&T and that three independent directors should be added to the board of directors for a better corporate governance structure. At present, Samsung C&T has 4.1% of Samsung Electronics shares. Regarding the special dividend payment, Elliott Management called for Samsung Electronics to pay US$37 billion, more than half of the US$70 billion or so cash currently held by the South Korean company.
Samsung Electronics responded by saying that it would review the request. “Any shareholder can express an opinion and we will pay close attention to the call,” it mentioned. The National Pension Service of South Korea, which is the third-largest shareholder in Samsung Electronics with a shareholding ratio of 8.7%, made no particular comment.
These days, an increasing number of foreign fund operators having Samsung Electronics shares are supporting Elliott Management with regard to those issues. This implies that Elliott Management’s intention of accelerating a corporate governance structure reform with the other foreign shareholders, who have more than 50% of Samsung Electronics shares now, is working. For instance, Mr. Andrew Gillan, head of Asia ex-Japan at Henderson Global Investors, said in his interview with Reuters on October 6 that Samsung Electronics needs to raise its dividend payout ratio in order to deal with undervaluation and Henderson Global Investors agrees with Elliott Management although the two have not met each other with regard to the issue. Henderson Global Investors, which is one of the three largest asset management companies in Britain, has an asset under management of approximately US$320 billion along with 0.12% of Samsung Electronics shares.
In the meantime, negative views are prevalent when it comes to the listing of the holding and operating companies on the NASDAQ. According to those with this view, the listing has little to do with shareholder value improvement and Samsung Electronics, on its part, can expect little benefit from the listing in today’s global stock market characterized by free capital movements.
Elliott Management, headed by billionaire hedge fund manager Paul Singer, has been aggressively intervening in the management of the Samsung Group since last year, when it was opposed to the merger between Samsung C&T and Cheil Industries. Elliott Management currently has 0.62% of Samsung Electronics shares via its subsidiaries Blake Capital and Potter Capital.