Management Succession
Samsung Everland, which is on top of the governance structure of the Samsung Group, made an unexpected decision for listing on June 3 and is going to list itself through the selection of the lead manager within the shortest period of time possible. Samsung Everland is the de facto holding company of the Samsung Group and the family of the owner owns 46 percent of the shares. Specifically, the share holding ratios are 25.1 percent, 8.37 percent and 8.37 percent for Samsung Electronics vice president Lee Jae-yong, Hotel Shilla president Lee Bu-jin and Samsung Everland Fashion Division president Lee Seo-hyeon, respectively.
Samsung has a cross-shareholding structure involving Samsung Everland, Samsung Securities, Samsung Electronics, Samsung SDI and Samsung C&T. As such, the listing of Samsung Everland has a massive impact on the entire group. It can be the starting point for the separation of the group through business succession, too.
Its business unit reorganization and consolidation of subsidiaries so far have been more of reshuffle for higher competitiveness than of a rapid transformation in the ownership structure. For example, Samsung SDS, which announced its listing plan on May 8, is in the lower stage of the structure and it is said that its IPO is mainly to procure the financial resources required for the third-generation succession.
The IPO of Samsung Everland is a whole different story though because it implies the full initiation of the corporate succession and separation into the electronics and financial segments of the only and eldest son, the hotel, construction and heavy chemical industry segments of the firstborn daughter and the fashion and media businesses of the second daughter.
“The listing of Samsung Everland is what signals a sea change in the ownership structure of the Samsung Group as a whole,” said HI Investment & Securities research analyst Lee Sang-heon, adding, “Equity spinoff and the enhancement of corporate value based on the growth potential are easier on the part of a listed company than a non-listed one that is evaluated only by its assets and profit value, which means Samsung’s separation and succession processes can be facilitated by means of the IPO.”
Another hot-button issue is the equity value of the owner’s family after the IPO. Still, the consensus is that the appraisal profit is of little significance unless the family members give up on their group ownership. In addition, Samsung Everland shares have not been traded in the curb market for almost three years and the calculation of the value per share is not easy due to the lack of comparable listed corporations. Some experts, however, estimate the market capitalization of Samsung Everland at around 4.55 trillion won and the three siblings’ holding at slightly over two trillion won given that Samsung Everland sold 17 percent of its shares to KCC in December 2011 at a per-share price of 1.82 million won and purchased 15 percent of treasury shares at the equal price.
The probability of profits from the listing appears to be rather higher in the other subsidiaries. The shares owned by some of the subsidiaries can be utilized as investment resources because the shareholding ratio of the largest stockholder and the affiliated persons in Samsung Everland exceeds 65 percent. Also, Samsung SDI and Cheil Industries, each of which owns 4.0 percent of Samsung Everland shares, are scheduled to be merged on July 1 and are expected to be a useful tool for the group’s future business. The equity value of both of the companies reaches 400 billion won assuming a price of 1.82 million per share.
Samsung Everland Likely to be the Top Price Stock Once Going Public
Investors are paying keen attention to the stock price of Samsung Everland, which has been announced to be listed on the KOSPI in the first quarter of next year.
At present, approximately 600,000 out of the 2.5 million securities issued are regarded as outstanding stocks excluding those owned by Samsung Group chairman Lee Kun-hee’s family members, subsidiaries of the group and friendly entities such as KCC. However, no stock has been circulated in actuality.
The possible stock price of Samsung Everland can be fathomed by looking into how the companies owning Samsung Everland shares appraise its value. KCC’s equity value in it is estimated at 888.1 billion won according to KCC’s audit report for Q1. The company has 425,000 Samsung Everland shares and the per-share value is approximately 2.09 million won.
Securities experts say that Samsung Everland’s value is at least seven trillion won given its business and assets. However, the stock price after the IPO is likely to go much higher when its central position in the corporate structure of the Samsung Group and its growth potential in overseas markets are taken into account.
According to market sources, the proper stock price of Samsung Everland is about 3.65 million won. Shinhan Investment & Securities calculated the value of the food and culture business unit of Samsung Everland at 908 billion won, 16 times the price earnings ratio of Hyundai Foodville, while estimating the values of the construction and leisure divisions at 729 billion won and 701.4 billion won each allowing for the domestic average PER and land prices. Also, its fashion business unit, bought from Cheil Industries last year, has been priced at 1.0.5 trillion won, which is equal to the transfer price.
“Samsung Everland’s total enterprise value amounts to 7.6 trillion won even by conservative calculations,” said Song In-chan at Shinhan Investment & Securities, continuing, “However, the amount can be as high as 9.1 trillion won assuming that the land price rises beyond the book value.” Then, the proper stock price ranges from 3.05 million won to 3.65 million won, which is second to none in the KOSPI and the KOSDAQ alike.
The share price is predicted to show a bullish movement for the time being after the IPO. Although the price will be around its company value in the long term, market participants’ preference for Samsung Everland, which is on the topmost position of the ownership structure of the Samsung Group, can go beyond the enterprise value with the ownership structure reform underway in earnest.