Samsung is planning to streamline its ownership structure in the coming months and significantly weaken its founding Lee family in the process of doing so, The Wall Street Journal reports, citing people close to the South Korean firm, one of the largest tech juggernauts on the planet. The move would allegedly come in the form of a major stock sale, seeing Samsung two affiliates sell off an approximately $1 billion stake in Samsung C&T, what’s essentially a holding company of the conglomerate. Samsung C&T is the same firm that merged with Samsung affiliate Cheil Industries in 2015 as part of a power consolidation that landed Samsung Group Vice Chairman and heir apparent Jay Y. Lee in prison before he was released on a suspended sentence earlier this year.
The new move would weaken Mr. Lee’s grasp over the family-run conglomerate — the type of business that’s often referred to as a chaebol in the country — but has yet to be approved by the boards of Samsung Fire & Marine Insurance and Samsung Electro-Mechanics, the company’s two subsidiaries meant to sell off their stakes in Samsung C&T. Certain investors were already notified of the plan that’s expected to be carried through in the second half of the year. Since the 1997 Asian financial crisis until recently, Samsung has been embracing circular shareholding, an ownership structure that allowed the founding Lee family to exert significant power on the conglomerate despite only officially owning a minority stake in it. In practice, the strategy saw certain shares of the chaebol’s many subsidiaries bought by other subsidiaries which were in turn controlled by the Lee family, allowing it to benefit from capital markets while still retaining control over the vast network of Samsung’s businesses.
The opaque practice also allowed certain individuals from both Samsung and other chaebols to avoid heavy inheritance taxes through complex maneuvers such as intra-corporate consolidations and spinoffs, as per previous reports from the Far Eastern country. By streamlining its corporate structure, Samsung would put Mr. Lee in a position where he’s facing a 50-percent inheritance tax after his father and Chairman Lee Kun-hee dies. The formal head of the chaebol has reportedly been in a comatose state since suffering a stroke in 2014. The 49-year-old inheritor will likely have to sell a sizeable stake in the firm in order to cover the tax and would hence lose even more control over the conglomerate, sources claim. The elder Mr. Lee is the fifth-largest shareholder of Samsung Electronics with a 3.86-percent stake worth some $12 billion and is considered South Korea’s richest man, boasting a net worth of approximately $20 billion. His successor has a 0.65-percent stake in the Seoul-based tech giant and is estimated to be worth close to $8 billion in total. A number of insiders are now claiming the younger Mr. Lee is aiming to dismantle the chaebol system himself and hasn’t been pressured into pushing for the simplification of the company’s ownership structure by anyone.
The founding Lee family still holds a sizeable stake in by far the most profitable arm of the chaebol via a similar scheme that saw affiliate Samsung Life Insurance end up with $26 billion worth of Samsung Electronics shares. Those particular holdings aren’t expected to be canceled in the near future, as per the same report. Mr. Lee still hasn’t returned to Samsung in an official capacity and it’s currently unclear whether he’ll resume his duties as Samsung Electronics chief.