Samsung Management Succession
Samsung C&T is drawing much attention amid the rapid progress of the Samsung Group’s ownership structure reform as of late.
Samsung C&T is an important link in the cross-shareholding structure among Samsung Everland, Samsung Life Insurance, Samsung Electronics, Samsung SDI, and itself. In addition, it has great influence on the key subsidiaries of the group such as Samsung Electronics, Samsung SDS, Samsung Everland, and Samsung General Chemicals with a share ratio of 4.1 percent, 17.1 percent, 1.5 percent and 37.0 percent each. In other words, Samsung C&T can be regarded as the center of the corporate ownership structure that is in possession of the shares of not just Samsung Electronics, which is the most important subsidiary in the group, but also Samsung SDS and Samsung Everland, which assume a very significant role in the corporate succession.
No specific plan has come out yet with regard to the restructuring of the Samsung Group’s construction arm represented by Samsung C&T. However, expert consensus is that an important announcement will be made very soon with the plans for the listing of Samsung SDS and Samsung Everland having been finalized.
One of their scenarios is the launch of a new construction company through the merger of the construction arms of four subsidiaries. Specifically, Samsung C&T can be merged with Samsung Engineering and then partially acquire Samsung Heavy Industries and Samsung Everland. Then, the resulting company becomes the largest builder in Korea.
This hypothesis has become more and more persuasive as Samsung C&T has continued to purchase the shares of Samsung Engineering since July last year. Samsung C&T has raised its share ratio to 7.8 percent as the second-largest shareholder of Samsung Engineering following Cheil Industries. The possibility has been mentioned that it will obtain the 13.1 percent shares of Cheil Industries, which is scheduled to be consolidated with Samsung SDI, too.
At present, the construction business of the Samsung Group is divided into Samsung C&T, Samsung Engineering, Samsung Heavy Industries and Samsung Everland. Some in the group have mentioned that the redundant business needs to be reorganized in the interest of management efficiency.
Another scenario suggested by stock market experts is that Samsung C&T is divided into a general trading company and a construction firm and then the latter is merged with its counterpart in Samsung Engineering. In this case, the stage can be set for the construction divisions of Samsung Everland and Samsung Heavy Industries to be absorbed by Samsung C&T. Also, the former can be combined with the service division of Samsung Everland so that the construction business and the general trading part are managed by Samsung Electronics vice president Lee Jae-yong and Hotel Shilla president Lee Bu-jin, respectively.
“Samsung C&T is the root of the Samsung Group along with Cheil Industries and assumes a highly important role in its cross-shareholding structure,” an industry source explained, adding, “Therefore, it is likely that Samsung C&T is split into a holding company and a business corporation through an equity spinoff so the latter is taken by the construction division and the former combines Samsung Everland and Samsung Electronics Holdings.” He continued, “This can be effective in that the shareholding structure can be maintained and vice chairman Lee Jae-yong can retain his control while the construction division is put into restructuring.”
The possibility of merger between Samsung C&T and Samsung Engineering is also rooted in the conversion of Samsung Electronics into a holding company.
Samsung C&T currently has an equity value of 11.2 trillion won (US$10.9 billion) in its affiliated companies, the largest proportion of it in Samsung Electronics. If Samsung Electronics is turned into a holding company now, the Samsung Electronics shares owned by Samsung C&T have to be sold for the removal of circular equity investment. Therefore, Samsung C&T has to be subject to equity spinoff.
However, there is an obstacle to the equity spinoff. The affiliated companies have a low share ratio in Samsung C&T and few treasury stocks. If the equity spinoff is conducted in the current state, Samsung C&T Holdings’ shares in the business corporation of Samsung C&T is limited to just 5.9 percent of treasury stocks. The percentage is only 13.1 percent even if Samsung C&T Holdings is merged with Samsung SDI Holdings.
“Samsung C&T may opt to raise its treasury stock ratio and equity ratio in the group through merger with Samsung Engineering in order to address this problem,” said Kiwoom Securities research analyst Kim Byung-ki, adding, “Also, the merger could lead to equity spinoff into Samsung C&T Holdings and the business corporation of Samsung C&T before a consolidation among Samsung C&T Holdings, Samsung Electronics Holdings and Samsung SDI Holdings.”