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Samsung Electronics Is Thinking Of Splitting Up The Company: Why Might It Make Such A Drastic Move?

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According to a report by Seoul Economic Daily, Samsung Electronics will think about splitting up the company into two, with the publication acquiring the information from an unnamed source.

The company split was proposed by Elliott Management, an activist hedge fund based in the United States, last month, in a bid to increase shareholder value.

The Samsung Split Proposal

The proposal that was sent in by Elliott Management looks for the electronics company to split up into a holding vehicle, which will be for purposes of ownership, and an operating company.

Elliott Management is also proposing for the company to release a special dividend worth $26 billion, to promise to give back 75 percent or more of its free cash flow to the company's investors, and to agree on the appointment of several independent directors.

Why Would Samsung Consider A Company Split?

Under pressure from Elliott Management, Samsung is considering to split up the company so that the heirs of the founding Lee family would be able to grab a stronger hold on the global smartphone leader. Samsung Electronics is a division of the bigger Samsung Group, and it is considered to be the conglomerate's crown jewel.

The board of directors will be holding a meeting on Nov. 29 to discuss the proposal of Elliott Management, and will announce its decision afterward.

Samsung Group Reorganization

The Samsung Group and the founding Lee family have not yet issued comments on the proposed company split for Samsung Electronics, but it should be noted that the reorganization of the Samsung Group has quickened its pace since Jay Y. Lee assumed control of the empire from his father Lee Kun-hee, who is still recovering from a heart attack that he suffered in May 2014.

Among the things that Samsung has done are offloading non-core assets and completing the merger of a pair of affiliate companies back in 2015. The merger allowed for the consolidation of stakes in key companies under a firm that is controlled by Jay Y. Lee and his sisters to facilitate the incoming transfer of authority.

What Does The Future Hold For Samsung Electronics?

At the very least, changes in the ownership structure is expected for the company, according to HI Investment. The transition comes as Samsung is still looking to recover from the Galaxy Note 7 fiasco, which pulled down its operating profit for this year's third quarter.

It remains to be seen whether the company can do that with the upcoming Galaxy S8, though early rumors and news about the flagship smartphone indicate that it might have what it takes.

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