November 23, 2024

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Samsung logo flag hang next to Korean flag (AFP-Yonhap)

A tense faceoff between shareholders and Samsung C&T management is expected, as five foreign activist funds have teamed up to demand the Korean firm return its profit to shareholders through dividends and a share buyback program that would amount to some 1.2 trillion won ($900 million).

In a regulatory filing on Thursday, Samsung C&T reported it has submitted the proposal made by the five activist funds, which includes City of London Investment, for a vote at the upcoming regular shareholders meeting slated for March 15. Samsung C&T, the construction and energy arm of Samsung Group, stands as the de facto holding firm for major Samsung affiliates, including Samsung Electronics.

According to Samsung C&T, the five activist funds requested the company pay 4,500 won for each common share and 4,550 won for each preferred share. The five entities own a combined 1.46 percent of Samsung C&T.

The amounts are significantly higher, by over 70 percent, than what Samsung has proposed, which is 2,550 won for common shares and 2,600 won for preferred shares. Still, that figure is a 10.9 percent increase from the previous year, and represents 49 percent of Samsung C&T's surplus cash flow, excluding its subsidiary Samsung Biologics.

Samsung C&T expressed concerns over the demand from the activist funds, explaining that the total volume of shareholder returns would amount to 1.23 trillion won, which "exceeds" the company's surplus cash projection for not only 2023, but also 2024.

"If such a substantial cash outflow occurs, the company will encounter difficulties in securing internal investment resources for future growth and strengthening its competitive edge," the company said in a regulatory filing.

Samsung C&T acts as a holding company for major affiliates of Samsung Group.

The activist funds are also pushing Samsung C&T to repurchase its own shares, going against Samsung's plan for stock retirement. The activist funds demand the company repurchase shares worth about 500 billion won, calculated based on 3.86 million common shares at the closing price of 129,500 won on Dec. 28, 2023.

The activist funds oppose Samsung C&T's plan to retire about 1 trillion won worth of shares it already holds, citing that the return on a treasury share is 150 percent when the discount rate to net asset value exceeds 60 percent. Samsung previously decided to retire 7.81 million common shares -- constituting a 4.2 percent ownership stake -- and the entirety of 160,000 preferred shares -- accounting for a 9.8 percent ownership stake.

Samsung C&T underscored that stock retirement is considered "a strong form of shareholder return" in Korea.

"The discount to NAV (net asset value) of domestic holding companies is a structural issue that is observed in many domestic publicly traded holding companies due to a combination of factors, such as the form of the parent company with listed subsidiaries and tax considerations when cashing in assets," Samsung said.

"Given that these structural issues are difficult to resolve in the short term, we do not believe that the return on share buybacks premised on unwinding the discount is a convincing argument for long-term shareholder value enhancement."

In the notice, Samsung C&T urged shareholders to vote against the proposals, citing concerns of a significant outflow of funds.

By Jo He-rim (herim@heraldcorp.com)