Samsung heir exerts influence with $8 billion in proposed deals

Lee Jae Yong is putting his stamp on Samsung Group after his father's hospitalization, overseeing $8 billion in proposed deals including a share buyback by the electronics company.

The 46-year-old Lee today unwound holdings involving at least eight businesses, with crown jewel Samsung Electronics Co. saying it would purchase $2 billion of its own stock. The group also disposed of stakes in the chemicals and defense businesses, adding to mergers and initial public offerings announced since family patriarch Lee Kun Hee suffered a heart attack in May.

As his father recovers, Lee Jae Yong is trying to find a way forward for the more than 70 companies his family controls amid slumping earnings at the world's biggest smartphone business and government curbs on chaebols. With interests that include TVs, weapons, shipbuilding and insurance, Samsung is narrowing its focus to prepare for the transition to a third generation of Lees.

"Samsung is transferring to a new generation and this is part of the group's strategy to burnish Lee Jae Yong's image and increase his visibility," said Park Ju Gun, president of corporate watchdog CEOSCORE. "Lee Jae Yong must have made the final call on the deals in the absence of Lee Kun Hee."

Samsung Electronics rose 0.9 percent to close at 1,201,000 won in Seoul before the buyback announcement. Its global depositary receipts rose in European trading.

Samsung Buyback

The stake sales and IPOs come as Lee Kun Hee's three children face taxes of more than $5 billion if they inherit his $12.1 billion fortune. The family controls the group while holding only about 2 percent of its shares.

Samsung Group is due to announce its annual management revamp next month, and the younger Lee may be elevated to chairman of Samsung Electronics, which contributes 70 percent of the group's total revenue.

Samsung Electronics, the world's biggest maker of televisions and memory chips, will buy back 1.65 million common shares and 250,000 preferred stock, according to a regulatory filing today. The Suwon, South Korea-based company, with a market value of about $160 billion, will buy stock from the market by Feb. 26.

"The vice chairman didn't play a leading role in the latest stake sale," said Kevin Cho, a spokesman for Samsung Group.

IPOs

Samsung Electronics, Samsung C&T Corp. and four other units will sell their stakes in Samsung Techwin Co. and Samsung General Chemicals Co. in a deal raising 1.9 trillion won ($1.7 billion), the conglomerate said earlier. The buyer, Hanwha Group, has been making explosives for more than six decades.

"We view this as part of business consolidation/transfer within Samsung Group before the group-wide restructuring," Sara Lee, a Seoul-based analyst with Morgan Stanley, said in a report.

The sales follow this month's 1.16 trillion-won IPO of Samsung SDS Co. and the announcement that Cheil Industries Inc., the de facto holding company, will begin trading next month after filing for a 1.52 trillion-won initial share sale.

The conglomerate had proposed a 2.5 trillion-won merger of Samsung Heavy Industries Co. and Samsung Engineering Co., though that was scrapped last week after shareholders claimed buyback rights.

"This clearly shows Lee Jae Yong's intentions that he will focus on businesses that Samsung can do well and drop the uncompetitive part," said Kim Ji San, an analyst at Kiwoom Securities Co. in Seoul. "This is evidence that Samsung Group's management decisions are now centered around the vice chairman."

'More Deals'

The changes come as the electronics division tries to rebound from posting its smallest quarterly earnings since 2011. Samsung's reign as the biggest smartphone maker is being challenged in the high end by Apple Inc.'s iPhone 6 models and in the budget category by devices from China's Xiaomi Corp. and Lenovo Group Ltd.

The squeeze is hurting Samsung's other businesses, curbing earnings at its display and processor chip divisions, as it prepares to release phones with flexible screens next year. Samsung Electronics shares are down 12 percent this year after falling 9.9 percent last year.

"We can't rule out the possibility that more similar deals are under way," said Kim Sang Jo, a professor of economics at Hansung University in Seoul. "Samsung may ditch some of its unprofitable construction businesses, as well."