News Column

Samsung firms merge in latest restructuring

September 2, 2014

SEOUL: Samsung Heavy Industries will absorb Samsung Engineering for about $2.5 billion (R26.6bn), the latest step in a restructuring at South Korea's largest conglomerate that has accelerated since the |controlling Lee family's patriarch was admitted to hospital in May.

Investors are closely watching how control of the group will be transferred to heir apparent Jay Y Lee and his two sisters.

Yesterday's deal did not by itself strengthen the younger generation's grip, analysts said, although it did streamline the structure of the sprawling conglomerate, or chaebol, and pave the way for further restructuring as succession looms.

No Lee family members directly hold shares in either of the two firms, which do not in turn own shares in crown jewel Samsung Electronics.

"Samsung Group is making adjustments to its various businesses, looking for either vertical integrations or moving pieces around for other purposes," said Chung Sun-sup, chief executive of corporate research firm

"The key purpose is to lay the groundwork that will make it easy for the Lee heirs to divide the inherited assets or separate out their own turfs within the group after they take control," he said.

The planned initial public offerings of Cheil Industries - formerly Samsung Everland - and Samsung SDS are seen as key elements in the succession process.

Yesterday's deal caught investors by surprise and sent shares in both companies surging.

Lee Kun-hee, the 72-year-old patriarch of the group's controlling family, has been in hospital since suffering a heart attack, adding urgency to the family's plans to keep its grip on a sprawling empire it controls through a complex series of interlocking shareholdings.

Under terms announced yesterday, Samsung Heavy Industries, the world's second-largest shipbuilder with a market capitalisation of about $6.6bn, will issue around 94 million new shares to Samsung Engineering shareholders at 26 972 won a share, valuing the deal at around 2.5 trillion won ($2.47bn). Samsung Heavy shares closed at 27 250 won on Friday.

Shares in Samsung Engineering, valued at about $2.8bn, closed up 12.5 percent while Samsung Heavy shares rose more than 6 percent yesterday, as investors appeared to bet that the merger would |create efficiencies for both over the long term.

The two merging companies had combined sales of about 25 trillion won last year and aimed to grow that to 40 trillion won by 2020, Samsung Heavy said.

A Samsung Group spokesman declined comment on how yesterday's deal fits into the group's overall restructuring process. A Samsung Heavy spokesman and a Samsung Engineering spokeswoman both declined further comment. - Reuters

Cape Argus

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Source: Cape Argus (South Africa)

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