Samsung Electronics considering a split under increasing pressure from investors

Company - Himanshu Gill - Nov 30,2016

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samsung electronics considering a split under increasing pressure from investors

Tech Giant Samsung has confirmed that it is considering dividing the company into two firms amid increasing pressure from shareholders to improve investor returns.

The company announced the proposed split on Tuesday, saying that it is under immense pressure from some investors who are asking Samsung to break itself into a holding unit and an operating company to boost shareholder value. It also disclosed its plans to increase dividends and continue to buy back more shares.

This restructuring pressure had been mounting on Samsung after the Note 7 fiasco. In October, the company was forced to stop production of its flagship smartphone model after failing to resolve battery problems leading to overheating and the devices catching fire.

The company also said it would pay out half of its free cash flow to shareholders for 2016 and 2017 and raise the dividend for 2016 by 36%, as compared to the previous year. The company's statement has come after US activist hedge fund Elliott Management called for the firm to split into a holding unit for ownership purposes and a separate operating company, this October.

Samsung did not directly mention Elliott in its statement, but the Korean firm promised to respond to the fund's ideas by the end of November.

Samsung, facing the biggest structural change in its 47-year history, said that it is ‘absolutely neutral’ whether to go for the change or not, and it would take around six months to study the option. It added that it would bring in some external advisors to thoroughly review the company’s current structure and possible changes.

Samsung’s offices were raided earlier this month by prosecutors in Seoul, on charges of involvement in South Korea’s biggest political scandal, alleging that the company was a confidante of President Park Geun-hye.

The firm also said that it would nominate a new, international and independent board member as well as create a separate governance committee. The proposal has been well supported by several of Samsung’s investors.