Samsung Electronics has decided that it will retain its current corporate structure after an intensive review has been made regarding the optimal corporate structure for the South Korean electronics giant. The comprehensive review of the matter, which was performed by a group of external advisors, revealed several issues that may negatively affect the company if it becomes a holding firm. Heeding the advice of the comprehensive review, the board of directors decided that the transition to a holding company, as being suggested by a portion of its shareholders, is not worth the risks involved.
The first major issue that could affect Samsung, according to the review, is related to the red tape inherent in the transition of a company to become a holding firm, as Samsung is required to divest of its equity stakes during the transition. This process requires the participation not only of the board of directors but also the stockholders of the affected companies, which would be a lengthy process, the company said. The second concern is related to the impact of the transition on Samsung Electronics’ stock price, as financial affiliates of Samsung are required to divest its stake in the electronics company. Selling a substantial amount of shares by these financial affiliates may negatively impact the share price of Samsung Electronics, as opportunistic traders may decide to buy Samsung shares at a substantially lower price due to the surplus of stocks for sale. Last is related to the perceived uncertainty of the current legal environment in South Korea, as certain laws related to holding firms are under review at this point.
The calls made for the transition of Samsung Electronics to become a holding company intensified in the wake of scandals rocking the electronics giant, which included the Galaxy Note 7 fiasco and the corruption charges involving the heir apparent of the company Jay Y. Lee. Some analysts believed that a transition to a holding company structure would help improve Samsung’s valuation through increased transparency and streamline the company’s complicated corporate structure. As the company moves forward retaining its corporate status quo, it will rely on its comprehensive portfolio of products to keep its business competitive, Samsung said on Thursday.