Samsung Electronics’ Assets worth 50 Trillion Won Up in Air

Samsung Electronics’ stock prices have been running bullish every day after the company announced to cancel its treasury shares. Accordingly, an increasing number of business industry sources said it is a shame that Samsung’s reluctant decision not to become a holding company and to cancel its treasury stocks is only used to boost its share prices. To cancel treasury shares is basically part of shareholder return policies. However, only major shareholders, who hold more than 50 percent of Samsung Electronics’ shares including foreign investors, are taking the lion’s share as 50 trillion won (US$44.21 billion) worth of astronomical capital is only focused on the stock market.

A senior official from the business industry said on May 3, “When Samsung’s assets worth 50 trillion won (US$44.21 billion) is used to invest in facilities, employment and merger and acquisition (M&A), there will be much positive effects on the national economy. From a businessman’s point of view, I think it’s very unfortunate to see harmful effects from uncertain policies for holding company and Samsung’s reluctant decision to cancel all the treasury shares.”

After announcing the company’s plan to cancel all its treasury stocks, Samsung Electronics closed at 2.19 million won (US$1,938) per share on the stock market on April 27, up 2.43 percent from previous trading day. Since then, its share has continuously hit a new record high. Its stock price closed at 2.25 million won (US$1,985) on May 2, up 4.9 percent from the figure on April 26 right before the company’s announcement not adopt a holding company structure. With the cancellation of treasury shares, the number of issued stocks will decrease and shareholders’ profits and asset values will increase further. As a result, foreign and institutional investors who possess a significant shareholding in Samsung Electronics, will be the biggest beneficiary of the company’s plan to cancel treasury stocks.

Samsung’s announcement to cancel its treasury shares has raised its stock prices but Samsung had no choice but to use its treasury shares like that largely due to uncertain holding company policies of the government and politicians. As politicians have prevented a company from becoming a holding company based on treasury stocks, Samsung had to make the second best choice. When Samsung announced not to adopt a holding company structure on April 27, the company also mentioned “legal uncertainty.”

The revised commercial law, which is currently brought before the National Assembly, prevents from reviving voting rights for treasury shares when a company is reorganized into a holding company through an equity spinoff. In principle, there are no voting rights for treasury stocks but the rights revive when a company split into an investment company and operating company after an equity spinoff. When the next government passes the revised commercial bill, Samsung Electronics will not be able to turn into a holding company. Samsung will need 60 trillion won (US$53.05 billion) of money to establish a holding company by securing 20 percent of its operating company’s shares without the revival of voting rights for its treasury stocks. In addition, the upcoming trial of Samsung Electronics’ Vice Chairman Lee Jae-yong, who is under arrest, and impaired Samsung’s image abroad have affected the decision. In short, Samsung had no choice but to appease shareholders for stable management at the moment when the company will not be able to become a holding company.

However, the business industry criticized that there is definitely a problem that huge amount of assets of the nation’s largest company is only used to increase its share prices due to the fact that holding company policies led by the government and politicians in the past 20 years have changed overnight. The 50 trillion won (US$44.21 billion) is equivalent to Samsung Electronics’ ability to invest in facilities for two years and acquire five global companies like Harman.

Samsung Electronics’ stock prices have been running bullish every day after the company announced to cancel its treasury shares. Accordingly, an increasing number of business industry sources said it is a shame that Samsung’s reluctant decision not to become a holding company and to cancel its treasury stocks is only used to boost its share prices. To cancel treasury shares is basically part of shareholder return policies. However, only major shareholders, who hold more than 50 percent of Samsung Electronics’ shares including foreign investors, are taking the lion’s share as 50 trillion won (US$44.21 billion) worth of astronomical capital is only focused on the stock market.

A senior official from the business industry said on May 3, “When Samsung’s assets worth 50 trillion won (US$44.21 billion) is used to invest in facilities, employment and merger and acquisition (M&A), there will be much positive effects on the national economy. From a businessman’s point of view, I think it’s very unfortunate to see harmful effects from uncertain policies for holding company and Samsung’s reluctant decision to cancel all the treasury shares.”

After announcing the company’s plan to cancel all its treasury stocks, Samsung Electronics closed at 2.19 million won (US$1,938) per share on the stock market on April 27, up 2.43 percent from previous trading day. Since then, its share has continuously hit a new record high. Its stock price closed at 2.25 million won (US$1,985) on May 2, up 4.9 percent from the figure on April 26 right before the company’s announcement not adopt a holding company structure. With the cancellation of treasury shares, the number of issued stocks will decrease and shareholders’ profits and asset values will increase further. As a result, foreign and institutional investors who possess a significant shareholding in Samsung Electronics, will be the biggest beneficiary of the company’s plan to cancel treasury stocks.

Samsung’s announcement to cancel its treasury shares has raised its stock prices but Samsung had no choice but to use its treasury shares like that largely due to uncertain holding company policies of the government and politicians. As politicians have prevented a company from becoming a holding company based on treasury stocks, Samsung had to make the second best choice. When Samsung announced not to adopt a holding company structure on April 27, the company also mentioned “legal uncertainty.”

The revised commercial law, which is currently brought before the National Assembly, prevents from reviving voting rights for treasury shares when a company is reorganized into a holding company through an equity spinoff. In principle, there are no voting rights for treasury stocks but the rights revive when a company split into an investment company and operating company after an equity spinoff. When the next government passes the revised commercial bill, Samsung Electronics will not be able to turn into a holding company. Samsung will need 60 trillion won (US$53.05 billion) of money to establish a holding company by securing 20 percent of its operating company’s shares without the revival of voting rights for its treasury stocks. In addition, the upcoming trial of Samsung Electronics’ Vice Chairman Lee Jae-yong, who is under arrest, and impaired Samsung’s image abroad have affected the decision. In short, Samsung had no choice but to appease shareholders for stable management at the moment when the company will not be able to become a holding company.

However, the business industry criticized that there is definitely a problem that huge amount of assets of the nation’s largest company is only used to increase its share prices due to the fact that holding company policies led by the government and politicians in the past 20 years have changed overnight. The 50 trillion won (US$44.21 billion) is equivalent to Samsung Electronics’ ability to invest in facilities for two years and acquire five global companies like Harman.