Elliott Management: Samsung Electronics Value Enhancement Proposals [SLIDES]

Paul Singer is back! Elliott Management’s presentation on “The Samsung Electronics Value Enhancement Proposals.”

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Executive Summary

Samsung is a leading global technology company which has failed for years to deliver proper shareholder value

• Samsung Electronics has a first-class portfolio of technology businesses which has made it Korea’s flagship enterprise
• Despite its impressive business achievements, Samsung Electronics’ ordinary shares typically trade at steep valuation discounts (approximately 30% to 70%) when compared to the Company’s closest peers
• These valuation discounts are in our view symptomatic of a combination of value-sapping factors, including:
• an unnecessarily complex Samsung group structure and ongoing uncertainty around a possible restructuring;
• sub-optimal capital management and bottom-tier shareholder returns;
• the lack of an effective international equity listing for Samsung Electronics’ core operating businesses; and
• subpar corporate governance within the Samsung group

A unique opportunity – the Samsung Electronics Value Enhancement Proposals

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• The Samsung Electronics Value Enhancement Proposals are a package of measures designed to address those factors:
  • Taking action to unlock the value of Samsung Electronics’ treasury shareholding as part of a streamlining of the Samsung group structure
    • The streamlining would include:
      • a demerger of Samsung Electronics into a listed holding company (Samsung Holdco) and a listed operating company (Samsung Opco);
      • a tender offer by Samsung Holdco to acquire further Samsung Opco shares; and
      • a merger of Samsung Holdco with Samsung C&T (KRX stock code 028260:KS) on fair terms
    • This would benefit all stakeholders by creating a transparent and easy-to-value organizational structure, retaining the Lee family’s controlling interest
  • Optimizing Samsung Opco’s capital management and dividend policies, to bring its balance sheet and shareholder returns up to international corporate standards
    • A one-time cash dividend payment by Samsung Opco of KRW30tn or KRW245,000 per share, representing 15% of Samsung Electronics’ share price of KRW1,614,000 as of October 4, 2016
    • An ongoing commitment to return 75% of Samsung Opco’s free cash flow to its shareholders
  • Enhancing investor access
    • A Samsung commitment to achieve a NASDAQ listing for Samsung Opco (in addition to a KRX listing)
  • Improving corporate governance
    • Adopting key board improvements and governance policies at Samsung Holdco and Samsung Opco
• We see this as a tremendous opportunity to deliver real shareholder value, corporate governance and transparency improvements, to help Samsung Electronics achieve an equity market valuation that properly reflects its first-class portfolio of businesses

Samsung Electronics offers a compelling investment case

Samsung – The World’s Largest And Most Profitable Memory Chip Manufacturer

DRAM (Dynamic Random Access Memory) memory chips

• Samsung Electronics is and has been the #1 DRAM  manufacturer globally for over 20 years and has amassed a market share of nearly 50% by revenue
• Samsung Electronics’ cost leadership and superior margins are testament to its ability to execute and migrate geometry more quickly than its competitors
• Samsung Electronics yet again demonstrated its dominance in DRAM memory chip technology by achieving mass production of l8nm-class DRAM in 3Q 2016, at. least 9 to 12 months ahead of its peers

NAND (flash memory) memory chips

• Samsung Electronics is the #1 NAND manufacturer globally with nearly 40% of the market share by revenue
• Samsung Electronics is the pioneer in 3D NAND technology in commercial production With formidable scale and resulting cost advantages as compared to competitors
• Thanks to its technological lead in 3D NAND, Samsung Electronics has achieved market share leadership in the enterprise SSD (Solid State Drive) market

Samsung – The Largest Smartphone Vendor With Sustained Leadership Across All Price Tiers

• Samsung Electronics’ hardware innovation and form factor (e. g. curved AMOLED display screens and wireless fast charging) has led to a real competitive edge in the premium smartphone market
• Despite the recent unfortunate events associated with GN7 batteries, Samsung Electronics is well-positioned in terms of market share and profitability in the smartphone market
• Through its emphasis on economies of scale and vertical integration, Samsung Electronics has been able to remain cost competitive in the mid-to-low end smartphone market despite increasing competition

• A full product portfolio across all price tiers has enabled Samsung Electronics to successfully defend overall market leadership with improving profitability
• Samsung Electronics has also developed strong distributioncapabilities supported by extensive retailer coverage and one  of the most comprehensive sets of content service provider relationships globally
• Expansion in selective mobile services, such as Samsung Payand security (KNOX), will likely further differentiate Samsung Electronics’ product offerings and help maintain its leadership on the Android operating system platform

See the full slides below.

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