Samsung has announced its restructuring plans by merging two of its major entities Cheil Industries with Samsung C&T share. The move is a step closer to diverting more power in the hands of the founding Lee family and increasing their stand in the company’s flagship business Samsung Electronics.
Seoul based Samsung Group (SSNLF, Financial) has put forward its consolidation plans as it proposes for the merger of the company’s de facto holding company Cheil Industries Inc. with trading company Samsung C&T Corp. which will further create a company with annual revenue of about 34 trillion won or $31 billion calculated as per last year’s results. The move will bestow more power in the hands of the chairman’s son Jay Y. Lee along with a higher stake in Samsung’s flagship company Samsung Electronics.
The merger-
In an effort to smoothen the path for Samsung’s founder family, Cheil will takeover Samsung C&T Corp. at more than $8 billion, which is even more strategic as it holds a key stake in the flagship firm Samsung Electronics. By this way, Jay Y. Lee, the successor of the Lee family will have a higher stake in Samsung Electronics ultimately. The deal is a move towards progressing the ownership from Lee Kun-hee who is currently hospitalized due to heart attack, to his children.
With dealings in varied industries from construction to fashion, Cheil industries Inc. will be offering almost $8.11 billion to buy Samsung C&T corp., which is a building firm. As per the deal, Cheil will offer 0.35 new Cheil shares that will be issued at a fixed price. The newly formed company will take the name Samsung C&T and will make Jay Lee the biggest shareholder of Samsung’s biopharmaceutical business that has a promising future.
The deal is yet to get regulatory and shareholders approval and will get complete by September this year. While regulatory approval is another matter, approval from investors is a tricky area considering a previous experience of the company wherein a $2.5 billion takeover of Samsung Engineering by Samsung heavy industries was opposed by the investors and couldn’t get completed. For the current deal, investors are finding the offer price to be smaller than market value. However, it is being expected that if share prices continue to rise in the same manner, investors might as well agree on the merger.
Samsung C&T has a 4.06% stake worth 8 billion in Samsung Electronics making it the third largest investor in the company after South Korea’s national pension service and Samsung life insurance. Ownership transfer to Jay Lee is being seen as a step towards solidifying the leadership in the company, as he will clearly become the largest shareholder in the company both directly and indirectly.
Other issues
After the deal gets approved, there are other issues that need to be settled by the company. These include resolving of inheritance tax if Lee Kun-hee’s humungous stakes in top companies Samsung electronics and Samsung Life insurance are carried forward to his heirs. After the takeover, Jay Lee will be the biggest shareholder in the new company with almost 16.5% stake. He is also the chairman of Samsung foundation of culture, which looks after the family’s museums and also has some stake in Cheil, Samsung Life and Samsung Electronics.
