Samsung plans to buy back 11.3 trillion won ($9.9 billion) worth of stock and pay out up to half of its free cash flow in dividends to placate foreign investors who own 55% of it. That will shrink its cash pile and may help the ruling Lee family reorganise their empire. Samsung will cancel the shares it purchases – equivalent to 5 percent of its total market value based on the closing price on Oct. 28. The company has kept previous buybacks as treasury shares, which it can reissue in the future.
A few months ago, NYT Dealbook reported
SAMSUNG C&T SHAREHOLDERS REJECT ELLIOTT’S ACTIVISM A rare test for shareholder activism in Asia failed on Friday with the Lee family of Samsung securing its future leadership in a face-off with a big New York hedge fund. Shareholders in a Samsung Group subsidiary voted for a merger with another Samsung company, clearing the way for a father-to-son transfer of power in Samsung’s largest family-owned conglomerate, Choe Sang-Hun and Neil Gough report in DealBook. The approval delivers a crushing defeat to Elliott Associates, the activist hedge fund, which opposed the merger.
Elliott owns 7.12 percent of Samsung C&T and had campaigned against its all-stock merger with Cheil Industries, another Samsung company. It had argued that Cheil’s $8 billion takeover of Samsung C&T cheated the minority shareholders by grossly undervaluing Samsung C&T shares. It said it was an unlawful attempt to help Lee Jae-yong, the song of Samsung’s chairman, Lee Kun-hee, inherit the conglomerate. Samsung has pushed back, depicting Elliot as a foreign “vulture” capitalist trying to disrupt an orderly generational change at the crown jewel of the South Korean economy in order to make a quick profit and exit.
The merger carries implications that reach well beyond the Lee family. Samsung, with its 70 subsidiaries ranging from shipbuilding to home appliances, generates a quarter of South Korea’s gross domestic product and its influence in the nation is pervasive. Other family-controlled conglomerates, known as chaebol, will have been watching the result carefully as they are also preparing their chairmen’s children for succession.
Although the South Korean public is increasingly skeptical of such dynastic transfers of power, people remain wary of foreign investors and activisim like Elliott’s is rarely seen in Asia. Publicly traded companies often remain under the control of close-knit family groups of state-backed shareholders, while legal protections for minority investors can be patchy, so many activist hedge funds choose to stay away.
However, all was not lost for Elliot. Cheil and Samsung C&T have promised to bolster corporate governance by increasing dividends and creating a shareholder rights committee after the merger.