Samsung speeding up leadership transfer

Samsung Group’s leadership transfer to the next generation is speeding up on the heels of Friday’s shareholder approval of the crucial merger of Samsung C&T and Cheil Industries.

The merged entity, set to be launched on Sept. 1 as Samsung C&T, will become the de facto holding company of South Korea’s largest conglomerate. 

The merger marks a watershed moment for Samsung’s restructuring that started in 2013 to increase the influence of Samsung Electronics vice chairman Lee Jay-yong, the heir apparent of the ailing Samsung patriarch Lee Kun-hee.

The merger will allow the founding family to simplify its shareholdings centered on the group’s two business pillars – Samsung Electronics and Samsung Life Insurance.

The junior Lee, in particular, will exert more control over the group’s crown jewel Samsung Electronics, which generates over half of the group’s total revenue.

Lee owns just 0.57 percent of the tech giant, but controls a 7.21 percent stake indirectly through Samsung Life Insurance. With the recent merger, he will control an additional 4.06 percent stake owned by Samsung C&T.

After the merger, a combined 11.84 percent stake in Samsung Electronics will be under his control.

Industry watchers predict that Lee could use his 11.25 percent stake in Samsung SDS, an IT solution provider, to further strengthen his grip on Samsung Electronics and fend off future challenges such as those seen in the proxy battle with U.S. activist fund Elliott Associates.

“Lee could seek to merge Samsung Electronics and Samsung SDS or sell his Samsung SDS shares to secure money to pay for the inheritance tax,” said Jeong Seon-seob, CEO of Chaebul.com, a conglomerate data tracking website.

“Either way, he would attempt to further elevate his control over Samsung Electronics.”

His father Lee Kun-hee is the richest person in Korea with total assets worth 11.4 trillion won ($9.4 billion). Under local laws, the inheritance tax is 40 percent, which means the junior Lee needs about 4 trillion won in cash to take over his father’s business empire.

“After the bruising proxy fight with Elliott, Samsung is unlikely to try another deal any time soon,” an industry source said on condition of anonymity.

A Samsung executive said, however, that the succession plan was nearing its end.

“We will try to complete the succession while the chairman is alive and under the current business-friendly Park Geun-hye administration,” he said.

Since his father was hospitalized in May last year, Lee, a third-generation member of the owner family, has led the conglomerate over the past year.

In May this year, he took office as chairman of the group’s two charities -– one of the final steps before taking the Samsung throne.

Last month, he also made a public apology over a Samsung-affiliated hospital’s mishandling of the Middle East respiratory syndrome outbreak. It was his first official press conference.

At the new Samsung C&T, he will not take an official title, even though he is the largest shareholder.

He is expected to play a key role in nurturing the bio and health businesses as the group’s new growth engine businesses.

The new entity aims to post 60 trillion won in sales by 2020, including 2 trillion won from bio businesses.

By Lee Ji-yoon (jylee@heraldcorp.com)