Samsung clan could call on mobile unit next

SAMSUNG SDS

22/07/2015 02:46

(The author is a Reuters Breakingviews columnist. The opinions 
expressed are her own.) 
    By Una Galani 
    HONG KONG, July 22 (Reuters Breakingviews) - Investors 
should worry about how Samsung Electronics  005930.KS  fits into 
the Lee family's wider restructuring plans. A rejig by the clan 
behind South Korea's biggest chaebol could spark higher 
dividends from the $180 billion smartphone maker. But the Lees' 
recent win against U.S. hedge fund Elliott suggests independent 
shareholders may have to suffer first. 
    The maker of the Galaxy S6 is the crown jewel among the 
Samsung Group's 70-odd companies. Yet the Lees directly own just 
4.7 percent of the electronics business, which is also known as 
SEC. Sooner or later it's likely to be affected as the family 
moves to tighten its grip on key assets in light of the 
ill-health of patriarch Lee Kun-hee, and to ensure it can pay an 
inheritance tax bill that could top $6 billion.  
    The hope is that a group restructuring will lead SEC to 
distribute more of its $44 billion cash pile. A measly payout 
ratio is one reason SEC trades on one times forward 
price-to-book, or just one-quarter the level of its more 
generous U.S. rival Apple  AAPL.O . SEC argues it needs cash to 
develop new technologies like curved screens - but boosting 
dividends now is also not in the family's interest if they can 
secure a bigger stake in the smartphone business.  
    One worry is that the undervalued SEC may issue new shares 
to buy the richly priced IT services group Samsung SDS 
 018250.KS , which is 19 percent owned by the family directly. 
That would dilute existing SEC investors. Samsung insists it has 
no such plans but it could push through a deal without a 
shareholder vote because SDS's market value, at $20 billion, is 
around just 10 percent of SEC's. Another theory is that Samsung 
may also try to shore up control by adopting a holding company 
structure like rival LG Group.  
    Samsung has promised higher dividends to get its way before. 
It was one of the group's many carrots to rally investor support 
for another inter-group deal, on lowball terms, which Elliott 
almost defeated. It could try to do so again here. If so, SEC's 
many foreign shareholders should push back and insist: these are 
two separate issues. 
 
    https://twitter.com/ugalani 
 
 
     
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    CONTEXT NEWS 
    - Shareholders in South Korea's Samsung C&T on July 17 
narrowly voted through an all-share merger with Cheil 
Industries, the effective holding company for the Lee family 
that controls the Samsung Group.  
    - Lee Kun-hee, patriarch of the Samsung Group made up of 
more than 70-companies, has been in hospital for more than a 
year.  
 
     
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    - For previous columns by the author, Reuters customers can 
click on  GALANI/  
 
    
 
 (Editing by Quentin Webb and Katrina Hamlin) 
 ((una.galani@thomsonreuters.com  Reuters messaging: 
una.galani.thomsonreuters.com@reuters.net)) 
 
Keywords: SAMSUNG RESTRUCTURING/BREAKINGVIEWS