Samsung review aims to put 2016 firmly in rear-view mirror

The Samsung management team has confirmed rumours it is considering a structural overhaul of the business after a pretty disastrous year for one of the worlds technology giants.

The announcement itself will see the team review its own corporate structure to potentially split the organization into a holding and operating business, as well as offering cash returns to investors, appointing new Directors to the board and creating a new corporate governance model. While the announcement will come as a relief to some investors, don’t expect any changes soon as the review is set to take up to six months.

“We are committed to enhancing sustainable long-term value for our shareholders and to remaining good stewards of capital,” said Oh-Hyun Kwon, CEO of Samsung Electronics. “Today’s announcement extends the actions we initiated last year and represents the next phase in the evolution of our shareholder policy and governance.”

Aside from the well-publicised failings of the Galaxy Note 7, which is set to impact the business to the tune of roughly $3 billion, the business has also been caught up in a political scandal in Korea. Local news sources have indicated investigators were probing Samsung’s role in corruption allegations focused on South Korea’s President Park Geun-hye over the relationship between the government and big businesses.

Tie in a couple of PR disasters, replacement devices which were just as lethal and a lumbering global smartphone market, and it has been a 2016 to forget for the Samsung family. As a result of the turbulent year, as well as a number of dubious moves in the M&A arena, Elliott Management Corp has been campaign for the split. While this might have been considered radical in a country such as South Korea in recent years, the move is gaining momentum, with the team gaining support from a number of equally vocal shareholders.

In an effort to put 2016 into the distant memory of shareholders, the Samsung management team’s roadmap falls into four key areas.

Firstly, the Samsung team will make a number of enhancements to Shareholder Return Program, essentially given more cash back to the patient and thick-skinned shareholders. Over the next 12 months, 50% of free cash flow will be allocated to shareholder returns, dividends will be increased by more than 30%, as well as being paid out four times a year as opposed to twice.

Secondly, the team will undertake a review into its capital management and cash position. Currently the team believe a net cash balance of 65 to 70 trillion Korean won will be required to effectively manage the business, though this will now be reviewed every three years to ensure the position leaves it protected in light of business and economic changes.

Thirdly, the management team plans to invite new independent board members with international corporate experience to join the business, which it believes will enable it to better represent the global nature of the organization. This is one area which will please Elliott Management Corp as well as other investors, as there has been a feeling a lack of independent voices at board level could be one of the reasons for a less than positive 2016.

In theory, creating positions which are more independent, as well as creating a new governance committee, comprised solely of independent board members, should produce a company which is more transparent and investor friendly. Some may comment that the running of a multi-national corporation with the influence of Samsung, being dominated by a single family would not be considered advisable in the 21st century.

Finally, as per the rumours yesterday, the team will undertake a review to see whether splitting the organization into a holding and operating company would be the best long-term option for the group on the whole. The move could also see the listing of shares on additional international exchanges, which would please some international investors who have been calling for greater transparency.

The move has been anticipated for a couple of days so will come as little surprise, though the move is still not definite. The Samsung board reserve the right to continue business as usual should the review not meet its expectations, however the announcement will appease vocal, and seemingly frustrated, investors who have been backing a company during a year to forget.

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