Ownership Structure Reform
The share prices of Samsung Group subsidiaries are showing a bullish movement session after session, with the ownership structure reform having emerged as a hot issue in the wake of the hospitalization of Chairman Lee Kun-hee. Investors are focusing particularly on Samsung Electronics, Samsung Life Insurance, and Samsung C&T, of which the corporate value and influence in the group are expected to rise down the road. The most likely scenario as of now is Samsung Life Insurance turning itself into an intermediate holding company, while Samsung Electronics and Samsung C&T become a business unit and a holding company during the succession process. The share prices of these companies gained approximately 3 percent until May 22 from May 12, when the news leaked about the chairman’s heart surgery, out of expectations that they will play a central role during the ownership structure reform. Foreign investors jumped on the bandwagon, too.
Although the Samsung Group itself is denying such a possibility, market participants have already come up with a variety of scenarios to cause a rapid rise in the stock prices of certain subsidiaries. For example, Samsung Electronics, Samsung C&T, and Samsung Electro-Mechanics, all of which own Samsung SDS shares, are expected to benefit from the listing of Samsung SDS within this year, a move that was announced on May 8. Samsung Electronics owns 22.58 percent of Samsung SDS shares and Samsung C&T’s and Samsung Electro-Mechanics’ share ratios are 17.08 percent and 7.88 percent, respectively. Cash greatly in excess of the book value can be available if these shares are turned into cash through secondary distribution during the listing of Samsung SDS.
Under the circumstances, market insiders are paying attention to whether or not the ownership structure reform issues will be applied to other big businesses. “The Samsung Group’s behind-the-curtain conversion into a holding company structure as of late is likely to have its impact on the governance structure reform of other major corporations given the overwhelming presence of the Samsung Group in Korea’s business community,” said an industry source, adding, “Investors would be well advised to predict the direction of the reform while seeking some beneficiaries.”
This is why a lot of investors are turning their eyes toward the Hyundai Motor Group. Both Samsung and Hyundai are preparing for third-generation ownership these days. Hyundai Glovis and Hyundai Mobis are expected to benefit from the succession process. Hyundai Motor Group Vice Chairman Chung Eui-sun, who is the son of chairman Chung Mong-koo, is the largest shareholder of Hyundai Glovis with a share ratio of 32 percent. Hyundai Mobis, in the meantime, is a key link in the cross-shareholding structure of Hyundai Mobis, Hyundai Motor Company, and Kia Motors.
Market insiders’ consensus is that the vice chairman will prepare some cash by heightening the corporate value of Hyundai Glovis during the ownership structure reform process, and then purchase Hyundai Mobis shares from Kia Motors. Then, the vice chairman can acquire the shares of Hyundai Mobis, which is the peak of the corporate governance structure, while cutting the cross-shareholding between Kia Motors and Hyundai Mobis. Hyundai Glovis’ and Hyundai Mobis’ shares gained 12.69 percent and 6.63 percent when compared to earlier this year, respectively.
The SK Group is also associated with similar issues. At present, SK Holdings is the holding company of the group, but SK C&C is acting as the de facto holding company with a share ratio of 31.8 percent, while SK Group Chairman Choi Tae-won owns just 0.02 percent shares in SK Holdings. In other words, SK C&C is governing the entire SK Group via SK Holdings. Rumors about a merger between SK C&C and SK Holdings have been repeated in this context.
“With SK C&C functioning as the de facto holding company, the possible options come down to two, that is, merger with SK Holdings or boosting the corporate value of SK C&C,” said a market expert, continuing, “This is the reason why SK C&C is considered to benefit from the ownership structure reform.” SK C&C closed at 164,500 won (US$160.72) on May 23, gaining 25.10 percent from the beginning of this year.