Samsung Electronics is reviewing its operating structure, for a possible conversion to a holding company, and plans to increase its 2016 dividend as well as repurchase shares as part of a wider initiative aimed at appeasing shareholder concerns.
During a strategy update this morning, Robert Yi, Samsung’s senior VP and head of IR, said the company is carrying out a comprehensive study of converting to a holding company structure and has hired outside consultants to advise on the matter. He said changing its operating structure is highly complex and requires multiple steps over a period of time and expects the review process to take at least six months.
The moves move after a US activist hedge fund, Elliott Management, put pressure on Samsung to divide into a holding company and an operating company. It also wants a $26 billion special dividend paid to shareholders, the appointment of three independent board members, and a US stock exchange listing.
Samsung today announced five steps to boost shareholder value, including allocating 50 per cent of 2016 and 2017 free cash flow for shareholder returns and increasing total 2016 dividends by 30 per cent to KRW4 trillion, with the dividend per share expected to rise by 36 per cent to KRW28,500 ($24.22).
It plans to initiate quarterly dividend payments in Q1 2017. In addition, it will repurchase shares using the remaining 50 per cent of 2016 free cash flow after the dividend payouts, and seek to further enhance its capital allocation policy beyond 2017.
Yi said it will continue with its policy of keeping a high net cash balance, targeting KRW65 trillion to KRW70 trillion ($55 billion to $59 billion), to ensure sustainable growth by holding the necessary reserves to meet future funding demands. It will review its cash position every three years and return cash to shareholders if the level is deemed higher than required.
Possible listing
Samsung also announced it is considering listing on a foreign stock market, possibly in the US, something it has been looking at over the past couple of years. The objective is to enhance shareholder value, said Oh-Hyun Kwon, vice chairman and CEO. But he said there are questions about the additional demand such a listing would attract.
If it opts to convert to a holding company, the listing could be for the operating company, but a decision on that will only come after it decides on converting to a holding company or not, Kwon said.
The company is reviewing candidates to nominate as independent board members and plans to confirm at least one at its general shareholders meeting in March.
The company will also create a new governance committee comprised of all independent directors. It will be able to give an update on the composition of the committee after the shareholder meeting, Yi said.
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