Samsung Everland IPO Signals Revamp of Largest Korea Chaebol

Samsung Everland IPO Signals Revamp of Largest Korea Chaebol

Samsung Everland Inc. said it will seek an initial public offering, adding to evidence that the founding family of South Korea’s largest conglomerate will restructure the group to retain control.

Everland, a theme park and zoo operator that’s also the de facto center of Samsung Group’s business empire due to a network of cross shareholdings, will seek an IPO by the first quarter of next year, spokesman Kim In Cherl said by phone today. Samsung SDS Co. said last month it plans to list shares while Samsung SDI Co., a supplier of batteries to Apple Inc., earlier this year agreed to buy affiliate Cheil Industries Inc.

Scrutiny of Samsung’s restructuring plans has intensified since Lee Kun Hee, the 72-year-old head of the group that includes Asia’s biggest technology company, was hospitalized last month following a heart attack. Samsung Everland will probably play a key role in the group’s transition to a holding-company structure, Morgan Stanley said in a report today. Such a shift may boost shares of Samsung Electronics Co. by more than 60 percent, according to CLSA Asia-Pacific Markets.

“This is part of the revamp that started from the beginning of this year,” Heo Pil Seok, chief executive officer at Midas International Asset Management Ltd., said by phone from Seoul. “The circular ownership structure is unwinding in a positive way. The value of stakes held by the Lee family will be realized, and that could be used as a funding source for other projects.”

Shares Gain

KCC Corp., the second-biggest shareholder of Samsung Everland, rose 11 percent to the highest level since 2007 at the close in Seoul. Samsung Electronics climbed to a six-month high, while Samsung Card Co. gained 4.8 percent. The benchmark Kospi index rose 0.3 percent.

Lee is the chairman of Samsung Electronics, the world’s largest maker of smartphones. His presumed heir, Lee Jae Yong, is vice chairman of Samsung Electronics and is the biggest shareholder of Samsung Everland with 25.1 percent as of the end of March, the company said in a regulatory filing in May.

Chairman Lee held 3.72 percent of Samsung Everland, while two daughters each held 8.37 percent. Samsung Card valued its 125,000 Everland shares, or 5 percent stake, at about 261.2 billion won ($255 million), the company said in a separate filing.

Everland is pivotal to controlling Samsung due to the system of cross shareholdings that has allowed the founders of Korea’s family-run chaebol to control their groups despite holding only small stakes. The Lee family controls 49.7 percent of Samsung Group’s 74 companies while holding a combined 1.53 percent stake, the Korea Fair Trade Commission said in a report published last year.

Key Role

Everland has a 19.3 percent stake in Samsung Life Insurance Co., which is the third-biggest shareholder of group flagship Samsung Electronics. Everland’s corporate value is estimated to be about 8.26 trillion won, Kiwoom Securities Co. said in a report today.

Samsung has repeatedly declined to comment on restructuring plans. One model put forward by analysts would see a merger between Samsung Electronics, construction unit Samsung C&T Corp. and Everland to form a holding company.

“We think Everland will take a key role, given its strong asset value and high ownership by the Lee family,” Sara Lee, an analyst at Morgan Stanley, said in an e-mailed research note today after Everland announced its IPO plan. “We view this as a chance for Samsung Group to unwind their circular ownership structure and transform into a holding company structure.”

Market Rally

Speculation that the process is accelerating lifted the combined market capitalization of Samsung’s 17 listed companies by about $24 billion since Samsung SDS said on May 8 it would seek a listing. SDS, which provides technology for the construction and manufacturing industries, may be an asset for the younger Lee to sell to pay the inheritance tax on his father’s assets, according to Park Ju Gun, the president of corporate watchdog CEOSCORE.

Lee Kun Hee was pardoned by former President Lee Myung Bak after a court in 2009 found him guilty of causing losses at SDS by selling convertible bonds to his son at artificially low prices in the 1990s.

Samsung SDI said today it will sell 2.18 million treasury shares worth an estimated 344.2 billion won to Samsung Electronics, while Cheil Industries said it will sell 2.07 million treasury shares worth 143 billion won to Samsung Electronics. Samsung Card separately said it plans to sell 2.4 million shares of Cheil Industries worth about 169 billion won.

Cross Shareholdings

Cross shareholdings have helped to cap equity valuations in South Korea, where the Kospi is valued at about the same level as its net assets, versus a price-to-book multiple of 2.1 for the MSCI All-Country World Index. Samsung Electronics’ price-to-earnings ratio of 7.6 compares with 13 for Apple Inc., maker of the iPhone.

President Park Geun Hye’s government introduced last year legislation banning family-run chaebol businesses from creating new cross shareholdings, which were blamed by the International Monetary Fund for contributing to the nation’s 1997-1999 financial crisis. The government is also offering tax breaks to encourage the chaebol to unwind existing structures to form more transparent holding companies.

Samsung Group may shift ownership into at least three holding companies that allow the family to retain control while reducing the need to tie up capital in cross shareholdings that could otherwise be invested in profitable projects, according to CLSA.

In a best-case scenario, a restructuring would boost shares of Samsung Electronics to 2.4 million won, CLSA analysts Matt Evans and Harry Kim write in a report on May 27. That’s about 65 percent higher than yesterday’s closing level.

(An earlier version of this story corrected Samsung Everland shareholding held by Lee Kun Hee’s family.)

To contact the reporter on this story: Sharon Cho in Seoul at

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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