Credit Edgar Su/Reuters
Last year, a big American hedge fund took aim at plans to restructure a part of Samsung, the South Korean giant that dominates many of its home countryâs industries.
Though it lost that battle, the hedge fund is now has its sights on the crown jewel of the Samsung empire.
Elliott Management proposed on Wednesday that Samsung essentially split its electronics business into two separate companies as part of a broader reshaping of the business.
It is one of the most ambitious efforts yet by a foreign investor to inject American-style activist investing into the world of Asian business, where families often retain control of huge publicly traded companies.
Among the most powerful of those dynasties is the Lee family of South Korea, whose Samsung conglomerate â known as a chaebol â oversees a daunting array of businesses from Galaxy smartphones to home appliances to shipbuilding.
Credit Steve Marcus/Reuters
Some hedge funds have found success, albeit on a smaller scale. The investor Daniel S. Loeb succeeded in persuading Fanuc, a Japanese robot maker, to double its dividend â though his campaign there followed an unsuccessful run at Sony, an effort that included a partial listing of its entertainment arm.
Elliott, which is run by the billionaire Paul E. Singer, tried last year to disrupt Samsungâs efforts to merge two of the empireâs affiliates, Samsung C&T and Cheil Industries. The move was meant to transfer more power to Jay Y. Lee, the son of the ailing chairman, Lee Kun-hee.
The activist hedge fund argued that the merger sharply undervalued Samsung C&T, and won the backing of international investors. Still, the investment firm lost the vote, albeit narrowly.
Now, Elliott is taking on Samsung Electronics, the most internationally prominent part of the Korean conglomerate. At the same time, the hedge fund â branded as a vulture capitalist during its last fight with the family â is trying to take a softer tone, arguing that the businessâ current setup has led to its being undervalued in the stock markets.
It is unclear whether Elliott, which owns 0.62 percent of Samsung Electronicsâ shares, will fare better in this effort.
Credit Pool photo by Cho Seong-joon
Elliott has proposed that Samsung Electronics divide itself into two publicly traded businesses: a holding company that would function as the Lee familyâs main ownership vehicle, and a separate company that holds the electronics makerâs operating businesses.
As part of that plan, the hedge fund proposed that the holding company merge with Samsung C&T, which now serves as the Lee familyâs holding company for the entire Samsung empire.
To reduce what the hedge fund called excessive cash reserves, Elliott also called for a special dividend of 245,000 won, or nearly $ 220, per share of Samsung Electronics, amounting to roughly $ 27 billion worth of payouts. The plan also proposed that 75 percent of the new operating companyâs cash flow be paid out as dividends going forward.
The holding company could remain traded on the Korean stock exchange, but Elliott called for the operating company to be listed on the Nasdaq stock market as well as the Korean one to gain greater visibility into the business.
The hedge fund also called for each of the new companyâs boards to add at least three independent directors.
âWe see this as a defining moment and a tremendous opportunity for the forthcoming new leadership of Samsung Electronics to further advance the companyâs remarkable legacy,â the hedge fund wrote in its letter.