A shareholder proposal has called on Samsung Electronics (005930) to direct its remaining 60 trillion won in shareholder return funds first toward buying back and cancelling preferred shares. The argument is that repurchasing and retiring treasury shares can lift share value more than cash dividends, which are a one-off return.
Life Asset Management said on the 15th that it sent a shareholder letter on the 14th to Samsung Electronics' board and management, proposing that next month's board meeting approve an agenda item allocating shareholder return funds first to the purchase and cancellation of preferred shares. Specifically, it proposed buying preferred shares through the end of December and cancelling them immediately, but only when the preferred shares trade below the common shares. It asked that the remaining funds be used for cash dividends.
Samsung Electronics had earlier said it would spend 90 trillion to 110 trillion won on shareholder returns this year. Of that, 30 trillion won is planned for third-quarter cash dividends. Life Asset Management argues that channeling the remaining roughly 63 trillion won (based on the midpoint) into treasury share buybacks and cancellations, rather than cash dividends, would maximize the shareholder return effect.
The asset manager cited the Act on the Structural Improvement of the Financial Industry as the reason for proposing the purchase and cancellation of preferred shares rather than common shares. The law bars a financial affiliate from holding 10% or more of the voting shares issued by a non-financial affiliate within the same business group without approval from the Financial Services Commission. Samsung Fire & Marine Insurance (000810) and Samsung Life Insurance (032830) currently hold stakes of 1.49% and 8.51% in Samsung Electronics, respectively. An official at Life Asset Management said, "If Samsung Electronics cancels common shares, Samsung Life Insurance and Samsung Fire & Marine Insurance may have to sell the excess to stay within their shareholding limits," adding, "Preferred shares, by contrast, carry no voting rights and face no such restriction, so they can be sold freely."
Life Asset Management also stressed that the same amount of funds could retire 1.36 preferred shares instead of one common share, and that a smaller number of preferred shares would raise the dividend per share for common shareholders. Samsung Electronics preferred shares traded 26.7% below the common shares based on the closing price on the 9th of this month.
Kang Dae-kwon, co-chief executive of Life Asset Management, said, "Cancelling preferred shares breaks free of the governance constraints that have blocked common share cancellations, while raising shareholder value more substantially and permanently with the same funds."
