Samsung C&T defeats activist funds in proxy battle

Activist funds arm in arm to demand higher dividends from Samsung C&T Corp. got defeated in a proxy fight against the de facto holding firm of Samsung Group as the lion’s share of its shareholders sided with the company.

During Samsung C&T’s annual shareholders’ meeting on Friday, 77% of voting shares gave the nod to the company’s dividend plan to pay out 2,550 won ($1.92) per common share and 2,600 won per preferred share in cash.

Following the voting, Samsung’s construction and trading arm will spend about 417.4 billion won in total for dividend payouts this year, up 10.9% from the previous year.

Five activist funds’ joint call for higher dividends of 736.4 billion won in total – 4,500 won per common share and 4,550 won per preferred share – however, garnered only 23% votes.

Their proposal to request the company to repurchase 500 billion won of shares in the company also got turned down.

City of London Investment Management, US-based Whitebox Advisors, Seoul-based Anda Asset Management and two unidentified investment firms in February put these demands on the agenda for a vote at Samsung C&T's general shareholders' meeting.

Considering that they together hold a combined 1.46% stake in the construction and trading firm, their loss was somewhat predicted.

But their proposal effectively succeeded in making issue after ISS and Glass Lewis, the two most prominent proxy advisory services in North America, have officially backed them.

After Friday’s voting, Samsung C&T shares ended at 154,100 won after losing 9.4% from the previous session.

EXAMPLE OF KOREA DISCOUNT  

A representative of the activist funds at the meeting condemned Samsung C&T’s inefficient capital allocation system, poor corporate governance management and a lack of transparency in its business strategy for causing a significant discount to its stock value and losses to its investors.

“Samsung C&T’s discount to its net asset value represents the so-called Korea Discount,” said Do Hyun-su, an attorney at Korean law firm LIN.

But Samsung C&T has strongly disagreed with the activist funds’ proposed dividend payouts, which could translate into 1.24 trillion won in cash, above Samsung C&T’s estimated free cash flow in 2024.

“If such a big chunk of cash was drained, the company could struggle to secure investment funds needed to foster its future growth drivers and enhance business competitiveness,” said the company.

The National Pension Service, Korea’s biggest institutional investor and the company’s major stakeholder with a 7.01% stake, also voted against the activist funds' proposal, saying it is too much.

SHARE REPURCHASES VS NEW BUSINESS INVESTMENT

In response to activist funds’ demand to buy back treasury shares, the company will use cash to invest in new business opportunities instead of share repurchases to improve shareholder value, said Song Kue-jong, vice president at Samsung C&T.

The company plans to come up with various ways to improve shareholder value late next year, Song added.

During the shareholders’ meeting on Friday, Samsung C&T’s proposal to retire 7.81 million common shares and 160,000 preferred shares held by the company was approved. The total value was estimated at around 1 trillion won.

In February last year, Samsung C&T 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.

The company plans to retire the entire holdings by 2026 by canceling one-third of the shares every year starting this year.

Write to Tae-Ung Bae at btu104@hankyung.com

Sookyung Seo edited this article.