The Samsung Group has made another move to prepare for new leadership with a planned merger that will provide the son of the group's chairman with a stronger position within the conglomerate.
The all-stock merger will combine Cheil Industries Inc., the de facto holding company of Samsung, with Samsung C&T Corp., the company's construction and trading arm.
Based on the financial results of last year, the resulting merged company will boast of annual revenue of 34 trillion Korean won, which is equivalent to $31 billion.
Lee Jae-yong, also known as Jay Y, the third-generation heir of the founder of Samsung, will be the biggest shareholder in the merged company with an approximate 16.5 percent stake. Lee is currently the vice chairman of Samsung Electronics, the crown jewel of the Samsung Group, as his father, Lee Kun-hee, remains incapacitated after suffering from a heart attack about a year ago.
Samsung has recently been making more movements to clean up the highly complicated share structure of the group, as it has around 70 affiliates spread out over a network of cross-shareholdings. The movements are in preparation of a transition of ownership, with the main focus being on Samsung Electronics. The Lee family controls Samsung Electronics though share ownerships in affiliates, including in Cheil Industries and in Samsung Life Insurance Co.
According to analysts, the announced merger will give more control to the younger Lee, though indirectly, of Samsung Electronics. Samsung C&T holds a 4.06 percent stake in Samsung Electronics, with this ownership stake to be added to Lee's 23.2 percent stake in Cheil Industries.
Cheil Industries has been integral to the power of the Lee family over the affiliates of Samsung, through the stakes that the company holds in several companies. Among the most prized ownerships of Cheil Industries is that in Samsung Life, which owns an over 7 percent stake in Samsung Electronics. Cheil Industries owned a 19.3 percent stake in Samsung Life in March, behind the 20.8 percent ownership of Lee Kun-hee in the company.
Cheil Industries, previously known as Samsung Everland, will be acquiring Samsung C&T through an offer of 0.35 new Cheil Industries shares for each share of Samsung C&T. The completion of the merger is expected to be on Sept. 1, pending the approval of shareholders of the two companies in meetings to be held in July.
"Some shareholders that believe that Samsung C&T prices are undervalued...could oppose the deal," said Kyobo Securities analyst Baek Kwang-jae, signaling that shareholder approval is not yet a given. "However, if the share prices continue to rise sharply, shareholders may agree on the merger."
The merged company will take on the name of Samsung C&T as a nod to the roots of the company in the trading business.
Photo: Charles Roper | Flickr
