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| Samsung Electronics Vice Chairman Lee Jae-yong encourages employees during a visit to the company's Onyang semiconductor plant in Asan, South Chungcheong Province, July 30. / Courtesy of Samsung Electronics |
By Kim Hyun-bin
Samsung Electronics Vice Chairman Lee Jae-yong has made it official that he will not pass on management of the Samsung Group to his children. The promise drew raised eyebrows from experts amid the possibility of Samsung seeking "drastic changes" in its future corporate governance.
Samsung SDS is expected to be under the spotlight following Lee's commitment, as the vice chairman is one of the top shareholders of the affiliate.
Lee is the largest shareholder in SDS holding a 9.2 percent stake. Samsung Electronics holds 22.58 percent in SDS followed by Samsung Construction & Trading Corp. with 17.08 percent. Lee's older and younger sisters Lee Boo-jin and Lee Seo-hyun each hold 3.9 percent of SDS shares.
Before the announcement, some analysts expected Lee to use Samsung SDS to possibly increase his control over Samsung Electronics through mergers of key divisions of Samsung SDS and Samsung C&T.
Samsung SDS and Samsung C&T are key affiliates for Lee from a management control standpoint. Many scenarios have been postulated whereby Lee splits off parts of Samsung SDS and merges them with Samsung Electronics to increase his control over the tech giant.
One possibility was the creation of a special entity out of Samsung Electronics that would purchase treasury stocks and merge with Samsung C&T or Samsung SDS, in which Lee has relatively larger stakes. Such thoughts got attention when Samsung Chairman Lee Kun-hee fell "unconscious" after suffering a heart attack in 2014.
Samsung's official position is that it has "no plans to separate out Samsung Electronics." However, it left room for possible managerial changes, adding, "We will review possible revisions at a suitable time."
Samsung SDS's stock price fluctuates whenever the issue of a corporate governance "revision" is mentioned.
When Samsung Electronics raised the possibility of a division of the company in June 2016, SDS shares dropped from 150,000 won to 130,000 won ― a significant drop considering on its first day of trading, Aug. 20, 2014, they ended at 327,500 won.
Samsung SDS has been looking good in terms of corporate growth and exploration of new business models that have satisfied shareholders in terms of returns. The company saw 7.89 trillion won in sales back in 2014, but these reached 10.72 trillion won as of 2019. Its operating profit also climbed 67 percent over the same period.
Investors seemingly interpreted Lee's announcement as a "plus factor" for SDS's stock price ― afterwards its shares jumped 9 percent. Observers say the "possible evaporation" of uncertainty surrounding a corporate governance revision to strengthen ownership of the affiliate was a key factor behind the surge.
