(Corrects requested dividend amount in paragraph 20)
By Michael Flaherty
Oct 5 U.S. hedge fund Elliott Management is
urging changes at Samsung Electronics Co Ltd,
calling on the South Korean tech giant to streamline its
structure and to pay out a special dividend.
The activist investor sent a letter to the world's No. 1
smartphone maker on Wednesday, spelling out changes that include
splitting into a holding company and listing its operating
company on the Nasdaq stock exchange.
Elliott's latest activist target is in the middle of a
leadership succession and is under pressure after issuing a huge
recall of all of its Galaxy Note 7 smartphones last month.
The $27 billion hedge fund also called into question
Samsung's corporate governance and said the family-run company
should add three new independent directors to its board.
Samsung, which with a market value of $230 billion is one of
the world's largest companies, was not immediately available for
Elliott said the new holding company should look at a
possible all-stock merger with Samsung C&T Corp - a
subsidiary that the New York hedge fund targeted in a heated
shareholder battle last year. Elliott ultimately failed to
derail Samsung C&T's merger with sister firm Cheil Industries
U.S. hedge funds rarely target foreign companies for
activist campaigns. Other than Third Point, a hedge fund active
in Japan, Elliott is the only major U.S. activist with a
significant presence in Asia.
Elliott, founded by billionaire Paul Singer, owns 0.62
percent of Samsung's shares.
With such a small stake and an already adversarial
relationship, Elliott faces an uphill climb in convincing other
shareholders and Samsung's leadership team to implement its
One factor that could help Elliott in its efforts is Samsung
Electronic' s more international shareholder base.
Unlike the Samsung C&T battle, where the majority of
shareholders were domestic investors, 11 of Samsung Electronic'
s top 20 shareholders are international investors, according to
Thomson Reuters data.
U.S. activist ValueAct Capital was given a board seat at
Microsoft Corp. in 2013, while holding only 0.8 percent
of the company's stock.
According to a person familiar with the matter, Elliott is
seeking to speak with Samsung's leaders and board, and work with
the company collaboratively to implement its proposed changes.
Elliott's investment comes after Samsung has undertaken a
series of moves to pave the way for a stable handover from the
ailing, 74-year-old Lee Kun-hee, who runs the group, to his
Lee's son, Jay Y. Lee, 48, is seen as the heir apparent, and
his profile at the company has risen during the past few years.
Among the hurdles to the handover is South Korea's
inheritance tax, which could cost the company around $6 billion.
Speculation on how Samsung could restructure its business
has loomed for at least a year, with analysts offering up a
variety of options, including the so called "opco/holdco"
division that Elliott proposed on Wednesday.
Elliott nodded to Samsung's recent stock buyback, but said
its "substantial and excess net cash position comes at a very
real and tangible cost to shareholders."
Elliott said it wants Samsung to pay a 30 trillion won ($27
billion) special dividend from its $70 billion cash pile.
Samsung's shares have risen 27 percent this year, though by
Elliott's calculations, the company's stock trades at a more
than 30-percent discount compared to peers.
($1 = 1,111.1600 won)
(Additional reporting by Rishika Sadam; Editing by Sriraj
Kalluvila and Nick Zieminski)