Samsung Group, which has completely removed the cross-shareholding links among its affiliates, is considering when to cancel the 20 trillion won (US$18 billion) worth of treasury shares held by Samsung Electronics.
This is part of the group's efforts to strengthen its shareholder friendly policy in line with its pledge to global investors, though it is having difficulty in meeting the government's demand for corporate governance reform.
According to the business community on September 30, Samsung Electronics Co. is now internally discussing how to strengthen its shareholder friendly policy after Samsung Electro-Mechanics Co. and Samsung Fire & Marine Insurance Co. sold their entire stakes in Samsung C&T, the de facto holding company of Samsung Group, through block trades on September 20, completely eliminating all cross-shareholding arrangements among Samsung affiliates.
Samsung Electronics is considering how to cancel 6.65 percent of its treasury stocks by the end of this year. An official from the business community, who is well acquainted with Samsung, said, “Samsung Electronics is in internal discussion when to call a board meeting for the cancellation of 40 trillion won (US$36 billion) worth of treasury stocks as it promised last year. The company is considering holding the board meeting in November or December.”
On April 27, 2017, Samsung Electronics voted for canceling its 13.3 percent stake in the total issued stocks, including 17,981,686 common stocks and 3,229,693 preferred stocks, at that time as part of its plans to improve the shareholder value. They were worth 40 trillion won (US$36 billion won) based on the stock price at that time.
Samsung Electronics made such a decision to wipe out concerns over a relatively weak shareholder friendly policy, including dividend payout ratio, compared to global companies like Apple and Google. However, Samsung Electronics planned to cancel 40 trillion won (US$36 billion won) worth of its treasury stocks over two years in its bid to minimize market shocks. Accordingly, the company cancelled a 6.65 percent stake in treasury stocks, a half of the total, last year, and it is planning to cancel the other half of treasury shares this year.
Samsung Electronics’ 6.65 percent stake of treasury stocks to be cancelled by the end of this year amounts to 426.88 million shares and worth 19.83 trillion won (US$17.87 billion) based on the price of 46,450 won (US$41.85) per share. Samsung Electronics now has 6,419,324,700 shares, which is 50 times more through a 50:1 stock split in May.
In particular, Samsung Electronics decided not to turn it into a holding company but strengthen its shareholder return policy by cancelling large-scale treasury stocks at that time after six months before of consideration, attracting attention. The market thought that Samsung Electronics purchased treasury stocks worth 40 trillion won (US$36.05) for a long period of time to lay the groundwork for adopting the holding company system. Under the current commercial law, a treasury stock doesn’t have the voting right but its voting right revive when a company converts into a holding company. Accordingly, a major shareholder can secure a share ratio in the company according to a stake in treasury stocks. However, the 18th National Assembly has proposed the revised commercial law that prohibits the so-called “magic of treasury stocks” and the 20th National Assembly is highly likely to pass the revision.
An official from the business community said, “Samsung Electronics has decided to cancel its whole treasury stocks with a growing number of legislation issues that bans a conversion into a holding company, such as the separation of industrial and financial capital and the revision of commercial law and insurance business. The company has decided to use treasury stocks as a way to convert into a shareholder friendly company, instead of converting into a holding company.”