Samsung Electronics announced on April 27 that it would not adopt a holding company structure. “After deliberating on the matter for about five months, we have reached a conclusion that the structure is rarely beneficial to our business competitiveness and can pose a burden on our business by dispersing our capabilities,” it explained.
Samsung Electronics mentioned the Act on the Structural Improvement of the Financial Industry and a commercial law revision bill tabled by The Minjoo Party lawmaker Park Yong-jin as its reason for the decision. Samsung Life Insurance, which is the single largest shareholder in Samsung Electronics, is governed by the act and it has to sell all of its 7.89% shares or reduce the shareholding ratio to less than 5% depending on the approval of the Financial Services Commission. In this case, the ratio of common shares with voting rights of the largest shareholders and affiliated persons on the part of Samsung Electronics falls to 15.56% or less. In addition, once the commercial law revision bill gets the green light in the National Assembly, Samsung Electronics cannot raise its ratio by making use of treasury stocks amounting to 12%. According to the bill, a spun-off company’s new shares cannot be allocated to a holding company’s treasury stocks in the case of equity spin-off.
In view of these two factors, Samsung Electronics vice chairman Lee Jae-yong has to purchase approximately seven million Samsung Electronics shares for his company to adopt a holding company structure. This costs 15.4 trillion won when the closing price of April 27 is applied.
Another factor is the negative public opinion on the vice chairman, who is currently in prison for bribery allegations involving former President Park Geun-hye. Earlier, special prosecutors mentioned management right transfer as their grounds.
Under the circumstances, the vice chairman is likely to increase the shareholding ratio of the largest shareholder by means of continuous treasury stock selling by Samsung Electronics and then dispose of cross-shareholding although these make up a time-consuming process. Some experts are predicting that he will resume discussions after his release regarding shareholding and business structure reorganization including holding company structure adoption.
In the meantime, Samsung Electronics voted that day for the establishment of a governance committee that is to be responsible for deliberation on matters expected to have a substantial influence on corporate governance structure improvement and shareholder value. The committee is expected to provide counseling and review for the company’s board of directors making the final decisions on the matters. In addition, the governance committee is slated to be in charge of the social contribution activities previously handled by its CSR committee.