Samsung Everland IPO adds to leadership transition talk

June 3, 2014 11:45 am

Samsung Everland IPO adds to leadership transition talk

By Song Jung-a and Simon Mundy in Seoul

The theme park operator at the heart of Samsung’s labyrinthine shareholding structure has announced plans to float, in what analysts called part of efforts to transfer power to the next generation of the South Korean group’s founding family.

“Through the IPO, we aim to strengthen management transparency in line with global standards,” said Samsung Everland on Tuesday, as it outlined plans for a public listing in the first quarter of next year.

The company, with interests ranging from theme parks and golf clubs to clothing, is also the second-biggest investor in Samsung Life, which in turn is a major shareholder in the group flagship Samsung Electronics.

Kiwoom Securities, a Seoul brokerage, estimated Samsung Everland’s equity value at Won8.3tn ($8.1bn), based on a sum-of-the-parts analysis of its assets.

The announcement came amid anticipation of a looming leadership change at Samsung. Lee Kun-hee, Samsung Electronics chairman and de facto leader of the broader group, has been in hospital since suffering a severe heart attack on May 10, after which he was unconscious under sedation for about two weeks.

As investors speculate about the mooted succession, attention has focused on a possible overhaul of Samsung’s convoluted “circular shareholding” structure. As with many South Korean chaebol business groups, Samsung Group is not a legal entity, but a term referring to a network of nominally independent companies that are held together by a web of cross-shareholdings.

Samsung Everland has long been a key part of that “circular shareholding” structure, which has allowed Mr Lee to wield effective control over the Samsung group of companies in spite of owning only a small fraction of their outstanding shares. It has also been seen as a key instrument in his efforts to hand control of the Samsung empire to his children.

Lee Jae-yong, vice-chairman of Samsung Electronics and its putative next leader, holds 25.1 per cent of Samsung Everland. His sisters Boo-jin and Seo-hyun – respectively the heads of Hotel Shilla and Samsung Everland’s fashion division – each hold 8.4 per cent, while their father owns 3.7 per cent.

The process through which Mr Lee’s children acquired their stakes has come under scrutiny. Two Samsung executives were convicted in 2005 of helping Lee Jae-yong acquire convertible bonds at below fair value, although the conviction was later reversed.

Samsung Everland on Tuesday said that the flotation plans were intended to help it raise capital and expand overseas. However, analysts said that the initial public offering was part of a drive to help Mr Lee’s children maintain control of the Samsung companies after his death.

“The family needs to secure funds to prepare for the succession by listing group units in which Lee Jae-yong has large holdings,” said Kim Jang-won, an analyst at IBK Investment & Securities. The Samsung Everland decision follows last month’s announcement that Samsung SDS, a Samsung Electronics IT services subsidiary in which Lee Jae-yong holds an 11 per cent stake, will list in the next few months.

Mr Kim added that Samsung might follow its domestic rival LG by replacing its circular shareholding structure with a holding company model. However, analysts question how the Lee family could maintain its influence under such a structure.

Shares of Samsung Electronics rose 1 per cent to Won1.47m while Samsung Life Insurance climbed 3.9 per cent to Won103,000.