Is it splitsville for Samsung Electronics?
- 28 November, 2016 14:55
Samsung Electronics could be heading down the same path as Hewlett-Packard, with the South Korean tech giant considering splitting into two separate companies, according to Seoul Economic Daily.
An unnamed source indicated that the company’s board of directors would hold a meeting on November 29 to respond to suggestions by major shareholders that it be broken up, Reuters reported.
The rumours follow the publication in early October, of an open letter to Samsung’s board of directors by Blake Capital LLC and Potter Capital – both of which are affiliates of activist hedge fund, Elliot Management – that calls on the company to restructure in a bid to unlock investor value.
“Samsung Electronics has done an impressive job of building a first-class portfolio of businesses which have made it Korea's flagship enterprise and one of the world's most important technology companies,” the letter stated.
“Despite the recent unfortunate events associated with battery cells for the Galaxy Note 7, Samsung Electronics is well-positioned in terms of market share and profitability.
“At the same time, however, Samsung Electronics' shareholders have suffered from the long-term undervaluation of the business by the equity market,” it said. “Simply put, the remarkable achievements of Samsung Electronics are not being properly reflected in the market's valuation of its shares, and that problem needs to be addressed.”
The investors suggested that Samsung’s structure is unnecessarily complex, due, in part, to the various legacy treasury, circular, and cross-shareholdings in the company broader ecosystem.
The letter recommended that, to simplify its existing structure, Samsung Electronics should be demerged from the group’s broader interests into a listed holding company, with the remainder of the group residing in a separately-listed operating company.
Such a move would be a “capital gains tax efficient” way of simplifying the structure of and control over the Samsung group, and would help to unlock the value of Samsung Electronics' treasury shareholding, the shareholders said.
It is understood that Samsung had indicated it would provide a response to Elliott Management’s recommendations by the end of November.
The recommended structural changes come after the company's smartphone division struggled to break even between July and September, as sales plunged due to the recall of its high-end Note7 smartphone following battery issues.
If the company does, indeed, opt for a split into two, it would follow in the footsteps of Hewlett-Packard, which split its operations into Hewlett Packard Enterprises (HPE), which sells servers and enterprise services, and HP Inc, which deals with PCs and printers.
That separation resulted in an estimated 30,000 job losses throughout the companies’ combined footprint.
The reports that Samsung could be split into two come hot on the heels of earlier industry rumours that the company is in talks with Lenovo to sell its entire PC portfolio, with the vendor understood to be seeking an estimated $US850 million for the struggling business division.
That alleged deal aligns with Samsung’s plans to shed non-core business assets, following the sale of its printer business to HP earlier this year.
Samsung had not responded to the media reports at the time of writing.