Photographer: SeongJoon Cho/Bloomberg

Samsung to Unveil Shareholder Steps as Elliott Pushes for Change

  • Call being held as executives, investors discuss steps
  • Elliott seeking split, new directors, special dividend

Samsung Electronics Co. said it will announce ways to improve shareholder returns on Tuesday, as heir apparent Jay Y. Lee faces rising pressure from investors for broad change.

South Korea’s most valuable company will hold a conference call at 9:30 a.m. in Seoul to discuss any potential steps, it said in a regulatory filing. Samsung executives and Elliott Management Corp. have been talking with investors in the U.S. and Korea to sound out opinions on the activist investor’s proposals to overhaul the Suwon, South Korea-based technology giant, people familiar with the matter said.

Shareholders are voicing dissatisfaction with the status quo after the Note 7 battery crisis that will cost more than $6 billion and at least two raids on its offices as part of a widening political scandal in Korea. Elliott, led by billionaire Paul Elliott Singer, has proposed that Samsung Electronics improve its corporate governance by adding three independent board members, list shares on a U.S. exchange, pay shareholders a special dividend of 30 trillion Korean won ($26 billion) and separate into an operating company and a holding company.

Samsung didn’t mention in Monday’s filing whether it’s considering a split or any other steps. The company declined to comment for this story. The stock rose 1.6 percent, leaving it up 33 percent this year.

Investors are beginning to express support for Elliott’s ideas not just in private meetings but also in public.

“We agree with Elliott’s proposals,” said Daniel O’Keefe, managing director of Artisan Partners and co-founder of the Artisan Global Value Team. “We think Samsung in its current structure faces certain existential threats. Its governance, board and management structure is not well suited to the rapidly changing and highly competitive technology industry. Its board of directors has no truly independent members with experience in global operations, technology and capital allocation.”

Samsung completed a share buyback worth 11.3 trillion won earlier this year, and has committed to return 30 percent to 50 percent of free cash flow to shareholders for three years starting from 2015. If Samsung Electronics agrees to the split, it would probably give the controlling family more clout over the unit. Prosecutors are looking into links between Samsung and a confidant of President Park Geun-hye, who is at the center of an influence-peddling investigation.

“Clearly the political environment is changing in Korea and seemingly in a direction that will make it harder for the status quo for the chaebols to persist,” O’Keefe said. “We think it is natural that all stakeholders demand better corporate governance.”

Artisan holds more than 1 million Samsung Electronics shares and has owned stock in the company for more than a decade, according to data compiled by Bloomberg. The Milwaukee-based company said Samsung’s recent missteps, including the fire-prone Note 7 smartphone that was pulled from the market in October, demonstrate that the company needs change to compete with Apple Inc., Google parent Alphabet Inc. and other rivals.

“Samsung has struggled over the past few years in its mobile business, most recently with the Note 7 fiasco, and we believe there is a link between poor governance and this poor performance,” O’Keefe said.

Artisan isn’t the only shareholder that is coming out publicly in support of Elliott.

“We certainly think that there is a lot of merit in what Elliott is saying,” said David Smith, head of corporate governance at Aberdeen Asset Management Asia. “What’s important to us is that these are win-win solutions.”

Aberdeen thinks that Samsung can afford to return more profit to investors through dividends. Smith emphasized that Aberdeen has been a long-term investor in Samsung, well over 15 years.

“Certainly Samsung’s cash flow is very strong and balance sheet is very, very healthy,” Smith said. “Could they afford to pay out more? Sure. I would say in the absence of that, they should make a pretty good case of what they are investing in and why.”

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