Samsung Divided: Splits into Two New Businesses

The shareholders have argued that a split would simplify the company structure making it easier to get a clear valuation of the firm's assets.

| Published: Tuesday, November 29, 2016, 22:53 [IST]

Well it's been quite a rough road for Samsung this year. With the Samsung Galaxy Note 7 exploding case and recently losing its much glorified title of the Android king to Huawei, the ride has not been not smooth so far for Samsung.

Samsung Divided: Splits into Two New Businesses

More significantly, with the disastrous Samsung Galaxy Note 7 case, it has cost the company almost 6.1 trillion won which seems to have put a big hole in the company's finances. Following which, some shareholders have been aiming of potentially splitting the company into two halves.

As such the U.S. activist hedge fund, Elliott Management which owns 0.6 percent of Samsung has already approached the South Korean tech giant in October and has made a proposition to divide itself into a holding vehicle for ownership purposes and an operating company.

In addition, the fund wants Samsung to pay out 30 trillion won ($26 billion) in a special dividend.

The fund has argued that a split would simplify the company structure making it easier to get a clear valuation of the firm's assets.

Currently, companies within the Samsung Group are linked through a complicated web of cross shareholding, linking Samsung Electronics to many other Samsung's firms and affiliates ranging from shipping, to heavy industries to insurance business.

This complicated network or layers of cross shareholding makes it difficult for investors to get a clear idea of what each individual Samsung company is actually worth.

However, the benefit of splitting Samsung Electronics into two companies would be that the cross-shareholding would affect only the holding company while the operating unit could be assessed separately. It will make a lot easier to arrive at a clean company evaluation.

Moreover, the split, if is official then it will give back more control to the founding Lee family behind the company.

So far, Samsung's keeping quiet about its intentions, but according to an unidentified source speaking to The Seoul Economic Daily, the company is considering it.

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