Samsung’s Heir Makes Mark With $8 Billion of Deals

Lee Jae Yong is putting his stamp on Samsung Group after his father’s hospitalization with $8 billion in proposed deals, including a stock buyback. Shares of its electronics company surged.

Samsung yesterday unwound holdings involving at least eight businesses, with crown jewel Samsung Electronics Co. (005930) saying it would purchase about $2 billion of its own stock. The group disposed of stakes in chemicals and defense businesses, adding to mergers and initial public offerings announced since the 46-year-old Vice Chairman Lee took a greater role after patriarch Lee Kun Hee’s heart attack in May.

As his father recovers, Lee Jae Yong is trying to find a way forward for the more than 70 companies his family controls amid slumping earnings at the world’s biggest smartphone business and government curbs on chaebols. With interests that include TVs, weapons, shipbuilding and insurance, Samsung is narrowing its focus to prepare for the transition to a third generation of Lees.

Samsung: Giant in Transition

“Samsung is transferring to a new generation and this is part of the group’s strategy to burnish Lee Jae Yong’s image and increase his visibility,” said Park Ju Gun, president of corporate watchdog CEOSCORE. “Lee Jae Yong must have made the final call on the deals in the absence of Lee Kun Hee.”

Samsung Electronics surged 5.3 percent to 1,264,000 won at the close of trade in Seoul. The stock earlier surged as much as 8.3 percent, the most in almost six years. The buyback was announced after the market closed yesterday.

Samsung Buyback

Samsung Group companies typically have their own management and boards of directors. The family controls the chaebol through a web of cross holdings while holding only about 2 percent of its total shares.

The stake sales and IPOs come as Lee Kun Hee’s three children face taxes of more than $5 billion if they inherit his $12.2 billion fortune.

Samsung Group is due to announce its annual management revamp next month, and the younger Lee may be elevated to chairman of Samsung Electronics, which contributes 70 percent of the group’s total revenue.

Samsung Electronics, the world’s biggest maker of televisions and memory chips, will buy back 1.65 million common shares and 250,000 preferred stock for an estimated 2.2 trillion won, according to a regulatory filing yesterday. The stock purchase from the market will be completed by Feb. 26.

The Suwon, South Korea-based company’s market value rose about $8.4 billion to $169 billion today. The increase is more than four times the estimated size of the buyback.

IPOs

“The vice chairman didn’t play a leading role in the latest stake sale,” said Kevin Cho, a spokesman for Samsung Group.

Samsung Electronics, Samsung C&T Corp. and four other units will sell their stakes in Samsung Techwin Co. (012450) and Samsung General Chemicals Co. in a deal raising 1.9 trillion won ($1.7 billion), the conglomerate said earlier. The buyer, Hanwha Group, has been making explosives for more than six decades.

“We view this as part of business consolidation/transfer within Samsung Group before the group-wide restructuring,” Sara Lee, a Seoul-based analyst with Morgan Stanley, wrote in a report.

The sales follow this month’s 1.16 trillion-won IPO of Samsung SDS Co. (018260) and the announcement that Cheil Industries Inc., the de facto holding company, will begin trading next month after filing for a 1.52 trillion-won initial share sale.

The conglomerate had proposed a 2.5 trillion-won merger of Samsung Heavy Industries Co. (010140) and Samsung Engineering Co. (028050), though that was scrapped last week after shareholders claimed buyback rights.

‘More Deals’

“This clearly shows Lee Jae Yong’s intentions that he will focus on businesses that Samsung can do well and drop the uncompetitive part,” said Kim Ji San, an analyst at Kiwoom Securities Co. in Seoul. “This is evidence that Samsung Group’s management decisions are now centered around the vice chairman.”

The changes come as the electronics division tries to rebound from posting its smallest quarterly earnings since 2011. Samsung’s reign as the biggest smartphone maker is being challenged in the high end by Apple Inc. (AAPL)’s iPhone 6 models and in the budget category by devices from China’s Xiaomi Corp. and Lenovo Group Ltd.

The squeeze is hurting Samsung’s other businesses, curbing earnings at its display and processor chip divisions, as it prepares to release phones with flexible screens next year. Samsung Electronics shares are down 7.9 percent this year after falling 9.9 percent last year.

“We can’t rule out the possibility that more similar deals are under way,” said Kim Sang Jo, a professor of economics at Hansung University in Seoul. “Samsung may ditch some of its unprofitable construction businesses, as well.”

(Source: Bloomberg)