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By Kim Hyun-bin, Baek Byung-yul
The passing of Samsung Electronics Chairman Lee Kun-hee has officially made way for Vice Chairman Lee Jae-yong to lead the group.
Since the late chairman suffered a stroke in May 2014, Lee Jae-yong has taken his father's place in the management of the global electronics titan, however, now more than ever it is time for the new head to solidify control and show his leadership capabilities. All eyes are on the Lee Jae-yong and the succession procedures but in order for a smooth transition to occur there are several issues that need to be resolved.
According to the country's Monopoly Regulation and Fair Trade Act, Lee Jae-yong is already listed as the head of Samsung Group. In April 2018, the Fair Trade Commission (FTC) transferred Samsung's head position status from Chairman Lee Kun-hee to Vice Chairman Lee Jae-yong.
The transfer was made as the vice chairman has made vital decisions such as conducting a merger of Samsung C&T and Cheil Industries as well as the disbandment of the Samsung future strategy office in the absence of his father.
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| Samsung Electronics Vice Chairman Lee Jae-yong |
In February 2018, the high court also ruled that Lee was the actual leader of Samsung Group. The court cited that Lee has the most shares of Samsung C&T, which acts as the quasi-holding company of Samsung Group and as the company is key when conducting any changes to the corporate structure of the conglomerate.
Samsung C&T solidified its position further through the merger with Cheil Industries in 2015. The vice chairman is the largest shareholder of Samsung C&T with 17.33 percent of the shares, followed by his two sisters Lee Boo-jin and Lee Seo-hyun with 5.55 percent each and the late chairman Lee Kun-hee with 2.88 percent. The four family members hold a collective 33.4 percent stake in the company.
But there are large barriers that stand in place on the path to possible changes to the corporate governance structure. Currently, the vice chairman is on trial over issues pertaining to the merger of Samsung C&T and Cheil Industries. Prosecutors believe the merger was conducted to ensure the vice chairman's succession, as before the merger Lee held a 23.2 percent stake in Cheil Industries and had no stake in Samsung C&T. The court ruling on the issue is expected to have an impact on the changes to the conglomerate's corporate structure.
In addition, Lee needs some of the late chairman's shares in Samsung Electronics and Samsung Life Insurance to enable him to take leadership of the Samsung Group. However, the government and the ruling party are working on an Insurance Business Act amendment, which could affect the governance structure of the conglomerate and the management succession.
If the National Assembly passes it, Samsung Life Insurance will be forced to reduce its share in Samsung Electronics from 8.51 percent to 3 percent.
As of end of June, the late chairman owned 4.18 percent of Samsung Electronics and 20.76 percent of Samsung Life Insurance and 2.88 percent of Samsung C&T. He is the largest shareholder of Samsung Life Insurance, but he still awaits inheritance of his father's Samsung Life Insurance shares to strengthen his control over the group.
The vice chairman hinted at a possible change in corporate governance structure in May. Industry watchers believe Samsung C&T will officially become the holding company for Samsung Group in the long run, while Samsung Life Insurance is expected to become a financial holding company for the group.
The adoption is unlikely in the short run because Samsung C&T needs to acquire 20 percent of Samsung Electronics, which requires tens of trillions of won. For the time being, the vice chairman may maintain the current structure and try to strengthen his position through the inheritance of his father's Samsung Electronics and Samsung C&T shares.
Currently, Lee owns shares in Samsung C&T which has shares in Samsung Life Insurance which has shares in Samsung Electronics, but industry watchers believe it could be simplified if Lee holds shares in Samsung C&T which has shares in Samsung Electronics through large-scale restructuring, which would put the vice chairman in a better position.
"Samsung C&T holds 43.4 percent of Samsung Biologics but the shares could be sold off to Samsung Electronics (to strengthen Lee's position) and also purchase Samsung Life Insurance's stakes in Samsung Electronics," Lee Sang-hun, analysts at Hi Investments and Securities said in a report.
Douglas Kim, an analyst at Smartkarma, said there could be a big spike in Samsung C&T's stock price as investors think the company will play the role of a holding company of the conglomerate.
"Among the numerous Samsung Group companies, Samsung C&T, which is a quasi-holding company of the Samsung Group could see some big spikes in share price in the coming days as investors push up this stock in hopes of a major reorganization," Kim noted.
"Currently, Lee Jae-yong, his family members, and related parties own a 33.4 percent stake in the company and after the death of the chairman, there could be an increased possibility that Samsung C&T may become a more influential entity among all the Samsung Group affiliates," the analyst added.
On the back of such expectations, Samsung C&T's share price, listed on the main KOSPI market, soared by nearly 15 percent.
