In the aftermath of the craziness of black Friday, will focus on other kinds of events. Samsung has been in the news very often. First we saw how they presented the new version of his flagship line, then with horror we saw how this Titanic product, that some said it was the first ending punch to apple, had this little issue that, well it made the phone explode like a firework.
After this the company fell like Icarus and faced an estimated hole of 6.1 trillion dollars. And just when we stopped hearing about Samsung on the news and the dust started to clear new information comes in and re shakes all the prior wounds.
Today, the New York based Elliot Management fund, which owns 0.6 percent of the company just proposed to split the company in two with the intention of boosting the stock price while giving at the same time giving 30 trillion won ($26 billion) in one hell of a special dividend, supposing 75% of the free cash flow of the company.
I am no financial analyst or an investment banker, but this looks as a huge move proposed, that will reshape the company completely. So, in order to see how is this going to play out, lets see very briefly the structure of the Korean giant.
As you can see, this company is huge. Just Samsung electronics, the section of the holding that we are talking about is only the 28% of the total sales of the company. As you can see, Samsung electronics has four divisions, being the IT the biggest by far, representing nearly 50% of the total Net Revenue of the division.
Now, the proposition of Elliot Management is to divide Samsung electronics in two. A holding company for ownership purposes and an operating company. This split would have several impacts, the first and most important is that the company will be easier to control, with the downside that the costs will increase with the split. This has been seen as a very good idea by the finances community, for example David Green, head corporate of Aberdeen Asset Management Asia says that“A simpler structure is certainly preferable, and yes most would agree they can afford to pay out more”
Secondly this split, due to the reduction of the size, would help the Lee family, the founders of the Samsung corporation, to gain more control over the Jewels of the crown of the corporation.
The proposal of Elliot Management continues with a restructuring of the shareholders return plan, giving back 75% of the free cash flow of the company to the investors and finally introducing independent directors into the company. As you can see the proposal, seems very reasonable, David Green calls it as “difficult to argue against”.
The proposal has been accepted to consideration today by the Samsung director board since it is in the line with the reorganization efforts that the new director Jay Y. Lee hear of the founder and father Lee Kun-hee has been executing since the the incantation of the patriarch in 2014, with actions like sealing none-core assets of the company in order to reduce the companies size.
It is still a very fogy proposal but, unlike the last proposal of Elliot Management in 2015 against the merger of two other divisions of the firm, this proposal looks much more alive than the last one, with the potential of reshaping the technological giant into a completely different business operation system.