Korea / Special Sits, Pairs, Index Rebalancing, Clepsydra Capital

Sanghyun Park

I investigate special situations, pairs, and index rebalancing trades in Korea.

Korea / Special Sits, Pairs, Index Rebalancing

Equity Bottom-Up

<ul><li>I guess everyone knows well about the reason why Samsung Electronics just continues to buy back shares. Yes, the reason is very obvious. It is because Samsung Electronics Vice Chairman Lee Jae-yong plans to proceed with equity spin-off of Samsung Electronics sometime in the next two years.</li><li>Lee plans to create a new intermediary holding company that owns Samsung Group’s IT field companies including Samsung Electronics. For this new intermediary holding company to become an intermediary holding company, it has to own at least 20 percent of Samsung Electronics shares. Samsung Electronics currently has 12.5 percent treasury stocks. It has to have at least 20 percent treasury stocks.</li><li>Now, we have another critical (probably the most important one) question. How can Lee walk around the South Korean holding company law? The South Korean holding company law bans any industrial holding company (Samsung C&amp;T Corporation) to own a financial company (Samsung Life Insurance). Lee definitely needs a huge favor from the government for amending the current holding company law so that Samsung Group’s ultimate controlling company (Samsung C&amp;T Corporation) can own Samsung Life Insurance as a major shareholder.</li><li>Fortunately, it seems that the Park Geun-hye Administration does not want to oppose Vice Chairman Lee Jae-yong’s plan. Nevertheless, the Park Geun-hye Administration needs something in return in order to justify its decision to amend the existing holding company law to the general public. Both Samsung Group and the Park Geun-hye Administration need electric vehicle business.In this regard, there is a strong possibility that Samsung Group and Vice Chairman Lee Jae-yong will propose to launch its own electric vehicle business. It is widely believed that the Park Geun-hye Administration wants to focus on the electric vehicle market as one of the essential growth drivers at national level.</li><li>The Park Geun-hye Administration wants Samsung Group to take a lead on the country’s electric vehicle industry. From Samsung Group’s standpoint, electric vehicle business will not be a terrible idea either. In the short term, any investment on electric vehicle business will not have a positive impact on the stock price of Samsung Electronics. Samsung Group and Vice Chairman Lee need to keep the price of Samsung Electronics low so that Vice Chairman Lee can have a favorable merger ratio when Samsung C&amp;T Corporation merges with a newly created intermediary holding company spun off from Samsung Electronics.</li></ul>

I guess everyone knows well about the reason why Samsung Electronics just continues to buy back shares. Yes, the reason is very obvious. It is because Samsung Electronics Vice Chairman Lee Jae-yong plans to proceed with equity spin-off of Samsung Electronics sometime in the next two years.Lee plans to create a new intermediary holding company that owns Samsung Group’s IT field companies including Samsung Electronics. For this new intermediary holding company to become an intermediary holding company, it has to own at least 20 percent of Samsung Electronics shares. Samsung Electronics currently has 12.5 percent treasury stocks. It has to have at least 20 percent treasury stocks.Now, we have another critical (probably the most important one) question. How can Lee walk around the South Korean holding company law? The South Korean holding company law bans any industrial holding company (Samsung C&amp;T Corporation) to own a financial company (Samsung Life Insurance). Lee definitely needs a huge favor from the government for amending the current holding company law so that Samsung Group’s ultimate controlling company (Samsung C&amp;T Corporation) can own Samsung Life Insurance as a major shareholder.Fortunately, it seems that the Park Geun-hye Administration does not want to oppose Vice Chairman Lee Jae-yong’s plan. Nevertheless, the Park Geun-hye Administration needs something in return in order to justify its decision to amend the existing holding company law to the general public. Both Samsung Group and the Park Geun-hye Administration need electric vehicle business.In this regard, there is a strong possibility that Samsung Group and Vice Chairman Lee Jae-yong will propose to launch its own electric vehicle business. It is widely believed that the Park Geun-hye Administration wants to focus on the electric vehicle market as one of the essential growth drivers at national level.The Park Geun-hye Administration wants Samsung Group to take a lead on the country’s electric vehicle industry. From Samsung Group’s standpoint, electric vehicle business will not be a terrible idea either. In the short term, any investment on electric vehicle business will not have a positive impact on the stock price of Samsung Electronics. Samsung Group and Vice Chairman Lee need to keep the price of Samsung Electronics low so that Vice Chairman Lee can have a favorable merger ratio when Samsung C&amp;T Corporation merges with a newly created intermediary holding company spun off from Samsung Electronics.

Samsung Electro Mechanics Co, Ltd. (009150 KS)

Samsung Electronics (005930): Totally New View on Samsung's Electric Vehicle Business