Yesterday, we reported that Samsung Electronics is thinking of splitting into two companies. By doing so, it would simplify its complex corporate structure and more importantly, increase the value of its stock. According to the US-based activist hedge fund Elliott Management, it is currently undervalued by as much as 70 percent.
The split, along with quite a few other things, was proposed by Elliot Management a while ago. At the time, Samsung said it would respond to the recommendation by the end of November. The biggest smartphone manufacturer in the world has now released an official statement on the topic, saying that it will indeed review the possibility of splitting the company into a holding firm and an operating unit, but will need some time to do so.
As this is quite a complex undertaking, Samsung has hired external advisors who will help it conduct a thorough review of the optimal corporate structure. The process will take at least six months to complete and after it is finished, the company will announce its decision.
In addition, Samsung has calmed its investors down a bit by announcing further enhancements to its shareholder return program. It will return 50 percent of free cash flow to investors in 2016 and 2017 and increase dividends by 30 percent when compared with 2015.
It will also initiate quarterly dividend payments starting in April 2017 and review its cash position every three years. Any excess cash beyond its target balance will be returned to shareholders.
So we’ll have to wait for at least another six months to see how this story pans out – but it’s a story worth keeping an eye on. According to Samsung, the decision to split could go either way, but market experts expect that it will happen as the split would greatly benefit the founding Lee family.