Offensive Buying
The stock prices of the subsidiaries of the Samsung Group have rose a lot despite the news about chairman Lee Kun-hee’s sudden hospitalization.
In the past, the prices used to fall every time the deteriorating health conditions of the Chairman were reported. Experts say that the pattern is different this time, since the news is not new at all. “It is expected that the group’s preparation for third-generation ownership, which is taking the form of the rearrangement of the financial arms’ shares and the announcement of the listing of Samsung SDS within this year, will speed up under the circumstances, and this is boosting the share prices,” one of them explained, adding, “The owner’s family needs to raise its share ratios in Samsung Electronics and Samsung C&T, which are predicted to act as the holding companies, and investors are anticipating some gain during the course.”
Samsung Electronics and Samsung Life Insurance, both of which showed a significant gain on May 12, are likely to have a central role in the ownership structure reform. At present, Samsung Everland owns 19.4 percent of Samsung Life Insurance shares, and Samsung Life Insurance is in control of Samsung Electronics with a share ratio of 7.2 percent. Likewise, Samsung Electronics is governing Samsung SDI and Samsung SDI is controlling Samsung C&T. It is forecast that Samsung Electronics and Samsung C&T will be divided into a business unit and the holding company, while Samsung Life Insurance assumes the role of an intermediate holding company through the corporate succession process.
In this case, the stock prices of the companies are likely to go up based on the low share ratio of the largest shareholders’ family members in Samsung Electronics and Samsung C&T. This is because not only the owner’s family but the entire Samsung Group will move to raise the percentage in order to prevent it from dropping during the succession. According to some market participants, Samsung Electronics Vice Chairman Lee Jae-yong and Hotel Shilla President Lee Bu-jin will expand their shares in the key subsidiaries including Samsung Electronics and Samsung Life Insurance by reducing those in Samsung SDS.
In the meantime, foreign hedge funds are predicted to rake in Samsung Electronics shares with the Chairman’s health conditions getting worse. When Apple CEO Steve Jobs passed away, Steel Partners bought a number of shares of Apple and tried to be involved in the management through shareholder proposals. Steel Partners succeeded in getting shareholder return measures such as increased dividends and treasury stock purchases. Then, it took the profits as the stock price increased.
“Relatively aggressive hedge funds tend to take advantage of owner risks in management rights disputes,” said a major asset management firm, continuing, “Samsung Electronics’ market cap is smaller than that of Apple, and so is the share ratio of the owner’s family, which leads to a higher possibility of foreign hedge funds making a move in this direction.”
Some foreign securities firms say that Samsung Electronics will remain in the limelight for the time being, because it has much room for upward movement even when the corporate structure reform issue is ruled out. “Recently, TSMC, one of the major rivals of Samsung Electronics, gained a lot, and an increasing number of global investors are turning their eyes toward Samsung instead of the Taiwanese company,” said CIMB.