Palliser Capital urges Samsung C&T reform for $25 bn value-up

London-based hedge fund Palliser Capital said on Wednesday that Samsung C&T Corp. is 63% intrinsically undervalued and could increase its value by $25 billion through governance and transparency improvement, as well as return-oriented capital allocation.

With a 0.62% stake in the construction and trading firm, Palliser urged Samsung C&T, the de-facto holding company of Samsung Group, to take “clear and actionable measures to “eradicate that discount” and  "unlock significant long-term value.”

It outlined the recommendations to Samsung in a presentation published on Wednesday, saying its team has been investing in the South Korean company for over a decade.

“Palliser’s presentation highlights the $25 billion disparity between Samsung C&T’s share price and its intrinsic market value, equivalent to a 63% discount,” it said in a statement.

The estimated value it claims can be unlocked is higher than Samsung C&T’s market capitalization of 22.3 trillion won ($17 billion) as of Wednesday’s close.

If the additional value is realized, it will translate into an upside share price potential of up to 170%, Palliser added.

20-YEAR VETERAN AT ELLIOTT MANAGEMENT

Palliser founder and Chief Investment Officer James Smith said his company has a great understanding and appreciation for Samsung C&T and its high-quality assets.

Smith led Elliott Management Corp’s Hong Kong operations until he left the activist fund in 2020 to set up Palliser Capital.

He spearheaded Elliott’s high-profile investments in Hyundai Motor Group and Samsung Group, the two largest family-controlled conglomerates in South Korea. He also waged unsuccessful proxy wars against the two business groups.

Back in 2015, Smith led a campaign against the merger between Samsung C&T and Cheil Industries Inc., arguing their combination was designed to consolidate the control of Jay Y. Lee, chairman of Samsung Electronics Co. At the time, Lee was vice chairman of the memory chip and smartphone giant.

FREQUENT TARGET OF ACTIVIST FUNDS

Samsung C&T has been a frequent target of activist funds because it is at the top of Samsung Group’s complex and cross-holding ownership structure.

Lee, the son of the group’s late Chairman Lee Kun-hee, is the largest shareholder of Samsung C&T with an 18.1% stake as of the end of September.

Combined with the shares held by its founding family members and other friendly shareholders, Samsung Group has a 33.63% controlling stake in the construction and trading arm.

“Palliser believes Samsung C&T has an opportunity to proactively lead on governance and capital allocation and change the narrative on the “Korea Discount” for the benefit of not only Samsung C&T shareholders, but the Korean stock market and broader society as a whole,” it said in the statement.

Specifically, it urged Samsung to direct capital to the best opportunities available to the company and deliver a fair return to shareholders; ensure its assets and investment plans are properly understood by the market; and reduce structural inefficiencies as the parent group seeks to transform into a holding company structure.

ANOTHER ACTIVIST FUND

Palliser’s move came one month after another activist fund City of London Investment Management Co. sent a letter to Samsung C&T’s top management to propose 500 billion won worth of share buybacks until the end of 2024 and a dividend of 4,500 won per share for 2023.

City of London Investment argued in the letter that Samsung C&T has made insufficient efforts to address “the significant long-term share price underperformance and the unacceptably wide discount to intrinsic value.”

The share buyback proposal followed Samsung C&T's announcement in February this year that it would cancel its entire treasury stock holdings worth about 2.9 trillion won over the next five years.

The City of London Investment said Samsung C&T’s shares has yielded a negative 25.3% return since it absorbed Cheil Industries in 2015 as of mid-September this year. That is equivalent to a more than a 66% discount of its intrinsic value, according to the activist fund.

Write to Hyun-Woo Oh at Ohw@hankyung.com
 


Yeonhee Kim edited this article.