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Activist shareholders want Samsung to stop hoarding cash

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Last updated: February 2nd, 2024 at 12:20 UTC+01:00

Activist investors have long had issues with how some of South Korea's largest family-run conglomerates operate. They routinely accuse the founding families of prioritizing their control over the empires instead of boosting shareholder value by paying dividends.

Similar claims have been made against several Samsung entities in South Korea, with the latest move coming from a group of activist investors in Samsung C&T, a company through which Samsung's founding Lee family controls Samsung Electronics, the most valuable division of the conglomerate.

Investors aren't happy about long-term underperformance

Samsung C&T, primarily in the construction and retail business, is widely regarded as the de facto holding company due to the ownership structure that enables the Lee family to exercise control over Samsung Electronics. It's currently trading at 65% below its net asset value.

A group of activist investors, holding just over 1% in Samsung C&T, comprising of US hedge fund Whitebox Advisors, UK-based City of London Investment Management, and UK-based Anda Asset Management have submitted their proposals ahead of Samsung C&T's annual meeting next month. They want the company to increase dividends and launch share buybacks to boost the stock's value.

The investors argue that Samsung C&T's board has consistently ignored local and foreign shareholder concerns about this underperformance and dismissed suggestions for improving shareholder value. This renewed push comes as South Korea's leaders aim to increase valuations of local conglomerates, seeking to replicate Japan's drive for improving corporate governance and raising valuations.

South Korea's leading financial regulator has even floated the idea of naming and shaming companies that don't share proposals to improve valuations, a move that was implemented by Tokyo and contributed to improved valuations there. President Yoon Suk Yeol has made it one of his top priorities to boost local stock valuations.

An incredible effort was previously made in 2017 by activist hedge fund Elliott Associates. It proposed that Samsung Electronics should be split into an operating company and holding company with a one-time special dividend worth $27 billion being paid from cash reserves.

Even as the proposal was well received by the public, Samsung Electronics ultimately rejected the idea but committed to increasing dividend payouts and initiating share buybacks. It has done that ever since and even in its latest guidance, Samsung said it would keep up the shareholder return program for 2024 – 2026.

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