Activist funds to wage proxy battle with Samsung C&T

Five activist funds have joined hands to wage a proxy battle with Samsung C&T Corp., demanding additional share buybacks and dividend increases.

City of London Investment Management, US-based Whitebox Advisors, Seoul-based Anda Asset Management and two unidentified investment firms have put these demands on the agenda for a vote at Samsung C&T's general shareholders' meeting on March 15. They hold a combined 1.46% stake in the construction and trading firm.

They urged the de facto holding company of Samsung Group to purchase 500 billion won ($375 million) of shares in the company.

They also recommended dividend payments of 4,500 won and 4,550 won per ordinary share and preferred share, respectively. Their proposal is respectively 76.5% and 75.0% higher than Samsung C&T’s planned payments.

Samsung C&T said their demands would translate into 1.24 trillion won ($930 million) in cash, above its estimated free cash flow in 2024.

In February last year, Samsung announced a share retirement plan, under which it would cancel its entire treasury stock holdings worth about 2.9 trillion won over the next five years. 

In line with the plan, Samsung C&T will retire 767.7 billion won ($575 million) worth of treasury shares in April and the remainder in 2025 and 2026 in phases, according to its regulatory filing on Wednesday.

WOLF PACK STRATEGY

The five activist funds’ joint move is seen as a wolf pack strategy, under which a group of investment funds team up to target a company, where they have less than a 5% stake in aggregate, and put pressure on it to enhance shareholder value.

In November last year, City of London Investment sent a letter to Samsung C&T’s top management to recommend shareholder-friendly measures, in line with current demands, along with four other activist funds.

In December last year, another London-based hedge fund Palliser Capital claimed that Samsung C&T was 63% intrinsically undervalued and could increase its value by $25 billion through governance and transparency improvement, as well as return-oriented capital allocation.

It did not participate, however, in the five investment funds' latest joint move.

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.

Jay Y. Lee, chairman of Samsung Electronics Co., is the largest shareholder of Samsung C&T with an 18.1% stake as of the end of December 2023.

Combined with the shares held by its founding family members and other friendly shareholders, Samsung Group controls 33.28% of the unit.

According to a study released by the Institute for Governance of Private and Public Organizations in 2015, 63 out of the 115 companies targeted by hedge funds in 2009 stayed afloat as of 2014. The other 52 companies went bust, filed for bankruptcy, or were sold to private equity firms.

The Canadian think tank said the latter group's growth momentum sharply deteriorated after jacking up dividend payments and selling core assets as recommended by activist funds.

Write to Ik-Hwan Kim and Jin-Sung Kim at lovepen@hankyung.com
 

Yeonhee Kim edited this article.