Samsung on Adopting a Holding Company Procedure to Boost Value

Samsung Electronics (SSNLF, 0.00%) said on Friday, it will be difficult to adopt a holding company structure at this time, rejecting U.S. activist hedge fund Elliott Management’s proposal and ruling, out for now, a long-anticipated succession move.

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Investors had expected the global leader in smartphones and memory chips to adopt a holding company structure, as the founding Lee family tries to solidify its control of the Samsung Group flagship ahead of a leadership succession.

But Chief Executive, Kwon Oh-Hyun told the annual shareholder meeting this was unlikely at this stage, giving investors their first insight into how the South Korean tech giant is approaching a potential restructuring amid a political scandal that has embroiled Samsung Group chief Jay Y. Lee.

“There are negative effects that would arise from transitioning to a holding company, so it does not appear it will be easy to do so at present,” Kwon said, without elaborating what those negatives were.

The comments sent shares of Samsung C&T (SAMSUNG.CT) down nearly 7%. As Samsung Group’s de facto holding company, it was seen as a likely beneficiary if Samsung Electronics adopted a holding structure.

Some analysts believed Samsung’s Lee family members would seek to merge C&T, which they firmly control, with the Samsung Electronics holding company as the final succession step.

“Investors have been hoping for a change for Samsung Electronics and more broadly Samsung Group, but this suggests that process will be delayed,” said CJ Heo, a fund manager at Alpha Asset Management.

Elliott, in October, called for the firm to adopt a holding company structure by splitting itself in two and paying out a 30 trillion won ($26.75 billion) special dividend.

Samsung announced a review in November, but until now, has maintained a neutral stance on the holding structure issue.

An Elliott spokesman declined to comment.

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Some investors said the mooted restructuring appears to have been delayed with Lee’s arrest on charges of bribery, embezzlement and other offenses in a corruption scandal that has already led to the removal of President Park Geun-Hye from office.

The 48-year-old leader of Samsung Group and Samsung Electronics’ vice chairman could face more than 20 years in prison. He denies the allegations.

Samsung Group patriarch Lee Kun-hee remains incapacitated following a May 2014 heart attack. His children face a multi-billion dollar inheritance tax when he dies, providing an impetus to quickly strengthen their grip on key affiliates such as Samsung Electronics.

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Investors believe a restructuring could streamline the company, improve its governance and boost its value.

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