Five activist funds, including City of London Investment Management, have initiated demands for Samsung C&T to retire its treasury stocks and increase dividends.
With the combined stake of the five funds amounting to less than 1.5 percent, the likelihood of Samsung C&T accepting their demands is low. Therefore, it appears that a showdown between Samsung C&T and City of London will occur at the shareholders’ meeting next month.
According to industry sources on Feb. 15, Samsung C&T has recently presented the proposals from five hedge funds, including City of London, which holds a 1.46 percent stake, or 2,375,000 shares, as agenda items for its regular shareholders’ meeting scheduled on the 15th of next month. The shareholders proposing the agenda items include City of London, ANDA Asset Management, and Whitebox Advisors. London-based hedge fund Palliser Capital, which had previously demanded shareholder-friendly policies from Samsung C&T, did not participate in the proposals.
The five activist funds previously demanded that Samsung C&T repurchase 500 billion won (US$375.09 million) worth of its own shares and distribute dividends of 4,500 won and 4,550 won per common share and treasury share, respectively. This represents a 76.5 percent and 75.0 percent increase, respectively, compared to the dividends proposed by Samsung C&T. Samsung C&T plans to distribute dividends of 2,550 won per common share and 2,600 won per preferred share.
According to industry sources, City of London has reportedly collaborated with other funds to meet the shareholder proposal requirement of owning over 1 percent of shares. Some observers have pointed out that this is a typical strategy where activist investors gather forces to demand shareholder returns after acquiring less than 5 percent of shares, which does not require disclosure.
In the notice for the shareholders’ meeting, Samsung C&T stated that the total shareholder returns proposed by shareholders amount to 1.24 trillion won, exceeding not only last year’s figure but also the company’s entire free cash flow for this year. The company expressed concern that such a significant cash outflow would make it difficult to secure internal investment resources for future growth and enhance business competitiveness. Samsung C&T requested shareholders to delegate their voting rights in favor of the company’s proposals.
Samsung C&T announced the cancellation of all of its common shares, 7.81 million in total, and preferred shares, totaling 160,000 shares, at the board meeting the previous day. This amounts to approximately over 1 trillion won in market value, accounting for one-third of Samsung C&T’s treasury shares.
Samsung C&T announced its policy to retire all treasury shares at the board meeting in February last year and stated its intention to gradually retire all treasury shares at an additional rate of one-third each year until 2026.