Two months ago a big US hedge fund called Elliott Associates proposed that Samsung Electronics – the crown jewel of the Samsung Group – should be split into two as it's undervalued by as much as 70 percent due to the company's “unnecessarily complex” corporate structure. The proposal calls for splitting Samsung Electronics into a holding company for ownership purposes and an operating company. It also called on the company to pay a one-time special dividend of $27 billion from its reserves, commit to dole out at least 75 percent of free cash as dividends going forward and even appoint some independent directors to the board. Samsung hasn't really taken a stance on the hedge fund's proposal, it has only said that it will “carefully consider” the proposal.
Samsung's board of directors will meet tomorrow and offer a formal response to Elliott's proposal, according to a report published today by the Seoul Economic Daily. The company appears to be thinking about splitting itself into two according to an unnamed source mentioned in the report.
Elliott Associates and Samsung have a tricky relationship which I have explained in quite a bit of detail in my opinion piece about why Samsung is likely to work with the hedge fund this time around. Samsung obviously won't do everything that the hedge fund is proposing and it's also going to engage with it on its own terms but analysts are of the view that this is something that the heir apparent Jay Y. Lee is interested in as well since it would further cement the founding Lee family's control over the Samsung empire.
Samsung's reorganization efforts have intensified under Lee's watch as we've seen the company sell non-core assets and invest in areas where it believes growth lies in the future.
