Conglomerates
Much attention is being paid to what will become of the Samsung Group’s corporate governance structure. Investors have been busy calculating their potential profits since Samsung Everland’s acquisition of the fashion business unit of Cheil Industries and Samsung SDS’s announcement on its merger with Samsung SNS. Experts are predicting that Samsung C&T is likely to make substantial profits thanks to its high shares in Samsung SDS and Everland.
According to financial industry sources, the share price of Samsung SDS has gone up by 37.5% in the over-the-counter market since the merger with Samsung SNS a month ago. The change in the governance structure of the group is expected to take the form of a spin-off, through the reorganization among third-generation owners.
In actuality, there are some difficulties in predicting which businesses and subsidiaries will be spun off. However, the chance is high that Samsung SDS and Samsung Everland, where the second-generation owners’ shareholder ratios are high, will be IPO targets in the near future for an appropriate shareholding ratio and fair price. Stock market insiders also say that investors need to focus on the two companies. According to them, the subsidiaries that own their shares can enjoy some increase in equity value if they are listed on the market.
At present, Samsung Everland’s market value is estimated at approximately 5.5 to 7 trillion won (US$5.1 billion to US$6.5 billion). A per-share price of 1.82 million won (US$1,694.05) was applied two years ago, when the Everland shares owned by Samsung Card were sold to KCC, and when Everland reacquired the treasury stocks. Considering this, the total value of the marketable securities is around 4.6 trillion won (US$4.3 billion).
“Samsung Everland’s company value is estimated at seven trillion won, allowing for its Samsung Life Insurance shares, real estate assets, and the like,” said Korea Investment & Securities Research Analyst Lee Hoon, adding, “If a discount rate of between 0% and 30% is applied to the marketable securities, the total value is thought to be between 5.5 trillion and seven trillion won.”
In the meantime, Samsung SDS’s company value is reckoned at around 5.821 trillion won (US$5.419 billion). The per-share value of Samsung SDS and Samsung SNS was 75,220 won (US$70.03) and 34,789 won (US$32.39) at the time of the announcement of the merger, respectively. So the market value of the company after the merger is expected to reach 5.821 trillion won (US$5.419 billion), which is approximately 11% of the market capitalization of Samsung C&T.
Samsung C&T and Samsung Electro-Mechanics currently have 11% of the Samsung SDS and Everland shares each, and Cheil Industries’ percentage is 5%. The shares they own are not essential to maintain the management rights and thus are likely to be turned into cash after the IPO. KCC has 17% shares in Samsung Everland, too.
Under the circumstances, Samsung C&T’s share price has gained 7.48% from 61,500 won (US$57.24) to 66,100 won (US$61.54) between September 23, the date of the announcement on the acquisition of the fashion business unit, and yesterday. Those of Samsung Electro-Mechanics and KCC have shown an upward trend as well.
“Investors would be well-advised to pay attention to Samsung C&T and Samsung Electronics during the reshaping of the governance structure,” said Lee Sang-heon, researcher at HI Investment & Securities. He went on, “They are expected to raise the value of Samsung SDS for contribution in kind, so as to strengthen their control and an issue such as a merger between Cheil Industries and Samsung Petrochemical could arise, too.”