Samsung cancels transforming into a holding company

Samsung Electronics has finally put an end to the controversy over its plan to change into a holding company structure.

The crown jewel of Samsung Group held a board of directors meeting on Thursday and decided not to convert it into a holding company. It claimed that a conversion would not increase its business competitiveness, giving no benefit to the company. Instead, it would require tremendous costs, which could potentially undermine its competitiveness in business capabilities.

“Samsung has no plan to change into a holding company going forward," Samsung Electronic announced in the first quarter earnings call.

The conversion plan has long attracted a lot of attention from the market in relation to Samsung Group heir Lee Jae-yong’s succession for years. It was first mentioned officially when activist hedge fund Elliott Management made a shareholder proposal in October last year.

Samsung’s latest decision is also apparently affected by the political attempts to revise laws including strengthening requirements for a holding company. If a holding company is required to have a higher percentage of shares in its subsidiaries, a conversion into a holding company would increase exponentially. In addition, Samsung Electronics was also uncomfortable with the argument that a shift to a holding company structure is one of the ways to inherit chaebols. “It would have been difficult for Mr. Lee to convert it into a holding company at a time when he is accused for allegedly being involved in the presidential corruption scandal," a source from the business community said.

Samsung Electronics also surprised investors by announcing that it would cancel its treasury shares worth 40 trillion won (35 million U.S. dollars) on Thursday, apparently in a move to appease shareholders who expected its conversion into a holding company.

Dong-Il Seo dong@donga.com