Samsung today announced its formal response to a proposal submitted by US hedge fund and minority shareholder Elliott Associates which suggested that Samsung Electronics should be split into a holding company for ownership purposes and an operating company besides paying a one-time dividend of $27 billion from cash reserves. The proposal also called for increasing dividend payout going forward and to appoint additional members to the board.
The company says that it has been taking steps to simplify its business to focus more on its core capabilities. We've seen it sell off non-core assets like the printing business and make new acquisitions for future growth. Samsung says it's reviewing “the possibility” of creating a holding company structure as well as the potential benefits that it affords which include listing of the company's shares on additional exchanges.
Since determining the optimal structure of such a big company is a complex task which involves important legal, operational, strategic, regulatory and financial considerations, Samsung has retained external advisors to conduct a thorough review of what the optimal corporate structure could be to raise the long-term value. The board does point out that this review does not indicate its intention one way or the other. The review process is expected to take at least six months and Samsung is only going to make a decision once the review is complete.
Samsung Electronics is the most valuable company in the Samsung Group. Moving to a holding company structure would only help the founding Lee family to cement their grip on the empire. If a decision is made to split up the company, the Lee family and Samsung Group affiliates with a stake in Samsung Electronics will swap their operating company shares for stock in the holding company which would strengthen their grip on the conglomerate that's tied together with a complex web of cross-shareholdings.
Samsung Electronics has also announced that it's going to further improve shareholder returns while ensuring that the company maintains the required investment resources to pursue compelling opportunities. The company today announced five enhancements to its shareholder return program announced back in 2015. For 2016 and 2017, Samsung Electronics is going to allocate 50 percent of free cash flow to shareholder returns. It's going to increase total dividends in 2016 by 30 percent compared to last year. The remaining portion of the free cash flow after dividend payouts will be used to buyback shares at the end of January 2017 to further boost short-term shareholder value. Samsung Electronics will then start dispatching dividend payouts in April 2017.
