Samsung Seen Tapping $55 Billion Cash Pile for Share Buyback

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An attendant reaches for a Galaxy S6 Edge smartphone.

Photographer: Kiyoshi Ota/Bloomberg
  • Top-ranked analyst says retiring shares could boost stock 20%
  • Family may tighten grip if other investors sell in buyback

Investors in Samsung Electronics Co. are watching their holdings plunge as new Galaxy smartphones get a lukewarm public response. With $55 billion in cash, the company may be poised to offer consolation.

Analysts expect the world’s biggest smartphone maker to buy back shares as early as this month in an effort to return some value to stockholders. Removing more than $1 billion of stock from the market could prompt shares to rally by as much as 20 percent, according to the top-ranked analyst covering Samsung, potentially erasing their declines this year.

Samsung has lost about $22 billion in market value -- roughly equivalent to a Nintendo Co. -- this year as sales of the S6 and Note 5 devices sputter against new models from Apple Inc. and Chinese makers. A buyback would be just the second in eight years and may take the sting out of sliding market share and sales projected to hit their lowest since 2011.

“A share buyback should happen anytime now because the earnings haven’t been performing well,” said Dongbu Securities Co.’s Yoo Eui Hyung, who tops Bloomberg Absolute Return rankings for his calls on Samsung Electronics.

Profit Result

Suwon-based Samsung is scheduled to release third-quarter operating profit and sales estimates Wednesday. That three-month period was marked by price cuts for the S6 and curved-screen S6 Edge phones just months after their debuts.

Analysts expect profit of 6.7 trillion won in the period ended September. While that is up from 4.1 trillion won a year earlier, it’s 34 percent below a record 10.2 trillion won two years ago. Net income and details of division earnings will be released later this month.

Shares of Samsung rose 3.2 percent to 1,151,000 won in Seoul, paring this year’s decline to 13 percent.

A stock repurchase also would help the founding Lees tighten their grip on the crown jewel of South Korea’s biggest conglomerate since the family typically doesn’t sell stock in a buyback, Yoo said. Vice Chairman Lee Jae Yong, the heir apparent, and his relatives control Samsung Group through a web of cross shareholdings with less than 10 percent of total shares.

Government Pressure

The Lees are revamping businesses amid pressure from the South Korean government to simplify the chaebol’s organization. Buying back shares from smaller holders would help them fend off any efforts to wrest control away.

Since family patriarch Lee Kun Hee’s heart attack last year prompted his son to take on more of a leadership role, Samsung Electronics shares are on their longest losing streak in more than three decades. The stock is headed for a third straight annual decline and has lost about $58 billion of market value since its peak, according to data compiled by Bloomberg.

“It’s a golden time now to do this because the stock is cheap,” said Park Ju Gun, president of corporate watchdog CEOSCORE in Seoul. “Investors may not be happy to see shares falling, but it could be good news for the family so it can better position itself during the group restructuring.”

Samsung may purchase as much as 1 percent of its stock, Yoo said. That would equal about $1.4 billion, based on the company’s market capitalization of about $141 billion. Yoo bases his estimate for a 20 percent rally on how shares have reacted to previous buybacks.

‘Return Value’

Samsung Electronics declined to comment in an e-mail.

The possibility of a Samsung buyback comes after the government imposed a 10 percent tax on chaebol conglomerates’ income unless their spending meets certain minimum levels. The measures are aimed at pushing chaebol to increase salaries and boost investment.

“Samsung is holding the ‘return shareholder value’ card and hasn’t used it yet,” said Claire Kim, an analyst at Daishin Securities Co. in Seoul. “That has triggered a market expectation that the company will announce a buyback plan.”

More Buybacks

There have been at least 34 announced buybacks by Kospi-listed companies this year, compared with 27 during the same period last year, according to the Korea Exchange.

Samsung said in November 2014 it would buy back common and preferred shares valued at 2.19 trillion won ($2 billion). That plan included repurchasing $1.8 billion of common shares, about 1 percent of its market value at the time.

Hyundai Motor Co. and Kia Motors Corp. also said in November they would buy back a combined 670 billion won of stock.

“There is an expectancy that the company will announce plans like dividend
payout or share buyback as the year comes to an end, ” said Yoo Jong Woo, an analyst at Korea Investment & Securities Co. “If there’s some sort of announcement from the company before that on its plans to return shareholder value, this will have a positive impact on shares.”

For more, read this QuickTake: Buybacks and Dividends

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