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Samsung Backs Away from Planned Split - ASHARQ AL-AWSAT English Archive
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The world’s biggest smartphone maker Samsung on Friday backed away from a planned corporate restructuring after the company was shaken by a shambolic recall and was embroiled in South Korea’s wide-ranging corruption scandal.

At the Samsung Electronics annual shareholders meeting in Seoul, board chairman Kwon Oh-Hyun said the firm had reviewed legal and tax issues around proposed division into a holding company and an operating unit, and identified “some negative effects”.

He told shareholders: “At this moment, it seems difficult to carry it out.”

Following the embarrassing recall of its flagship Galaxy Note 7 smartphone – as a result of overheating and sometimes exploding batteries – and under pressure from activist shareholders to improve corporate governance, Samsung Electronics said last year that it was considering splitting the company in two.

Its vice-chairman Lee Jae-Yong, heir to the parent Samsung group, has since been arrested and indicted for bribery, along with four other senior executives, in connection with the graft scandal that saw ex-president Park Geun-Hye impeached.

Shares in Samsung Electronics — the group’s flagship subsidiary — closed 0.72 percent down, having hit record highs this year on expectations of higher profits.

Samsung SDS plunged 8.47 percent and Samsung C&T was down 7.27 percent.

Various Samsung units have cross-shareholdings in other parts of the group, a byzantine structure that enables the Lee family to control the business empire, which has revenues equivalent to a fifth of South Korea’s GDP.

A newly created committee to improve the company’s governance structure will be appointed by next month, Kwon said. It is still searching for a global business leader to join its board.

Vice-chairman Lee has effectively been at the helm of the Samsung group since his father suffered a heart attack in 2014.

His indictment sent shockwaves through the company and triggered the announcement of a major reform of its top-down management style.

The corruption scandal centers on the former president’s secret confidante Choi Soon-Sil, who is accused of using her ties with the head of state to force local firms to “donate” nearly $70 million to non-profit foundations, which Choi allegedly used for personal gain.

Samsung was the single biggest donor to the foundations and is also accused of separately giving millions of euros to Choi to bankroll her daughter’s equestrian training in Germany.

In total it handed over nearly $40 million.

One of the favors Lee allegedly sought from Park was state approval for a controversial merger of two Samsung units in 2015, seen as a key step to ensure a smooth transfer of power to him.

The deal was opposed by many shareholders who said it had willfully undervalued one of the firms. But it eventually went through after the national pension fund — a major Samsung shareholder — approved it.

Samsung has insisted the payments were charitable contributions it was obliged to make under pressure from officials, and not bribes.

But Kwon apologized at the meeting, saying: “We’re sorry that we have created a stir in society.”

The firm would review all its charitable donations, he said. “We’ve come to realize that our donations could be used for other purposes than we had intended.”

Samsung is due to unveil the Galaxy S8 smartphone next week, its first major smartphone launch since the battery fiasco.

But the main focus of attention during Friday’s meeting was the scandal.

Asharq Al-Awsat English

Asharq Al-Awsat English

Asharq Al-Awsat is the world’s premier pan-Arab daily newspaper, printed simultaneously each day on four continents in 14 cities. Launched in London in 1978, Asharq Al-Awsat has established itself as the decisive publication on pan-Arab and international affairs, offering its readers in-depth analysis and exclusive editorials, as well as the most comprehensive coverage of the entire Arab world.

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