How Samsung’s ownership may change as heirs take over

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South Korea’s strong Lee household faces a struggle to keep control of Samsung Group, the nation’s largest conglomerate, after the death of patriarch and group Chairman Lee Kun-hee.

In the astronomical inheritance taxation bill to potential legal obstacles, below are a few of the issues that the family faces as it seeks to stay on top of the company empire set back in 1938.

CROWN JEWEL

The household is expected to focus on maintaining control of the conglomerate’s crown jewel Samsung Electronics, but household members’ combined direct stake ownership is only at 5.8%.

Their outsized control is made possible through their shareholding in Samsung Life Insurance, which holds 8.5% of the flagship chipmaker, and Samsung C&T Corp, which owns 5%.

The majority of the late chairman’s assets were a 4.18% stake in Samsung Electronics, worth about 15 trillion won (approximately $13.3 billion), which the family is expected to try to inherit entirely.

HEFTY INHERITANCE TAX

If the family inherits Lee’s stocks, the total tax bill is estimated to top 10 trillion won (approximately $9 billion). It can be paid in instalments; one-sixth must be paid initially, then the rest over five years, meaning annual payments can exceed $1 billion.

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MONEY TO PAY THE TAX

The Lee family can sell their stocks in information service provider Samsung SDS and other non-core affiliates to pay the tax.

Dividends totalling about 702 billion won a year from their combined holdings in Samsung affiliates can also be used, which will add up to about 32% of the annual tax bill, according to Choi Nam-kon, an analyst at Yuanta Securities.

The shortfall may have to be covered with loans or partial sales of stakes they hold or will inherit in Samsung Life Insurance and Samsung Electronics.

“The opinion is that selling portion of this stake in Samsung Electronics through the inheritance procedure may be inevitable,” said Jeong Dae-ro, analyst at Mirae Asset Daewoo Securities.

Such stake sales will weaken the household’s direct control of Samsung Electronics.

LEGAL OBSTACLES

Proposed legislation making it tougher for insurance companies to hold substantial stakes in non-financial affiliates relative to their resources could induce Samsung Life to sell about $20 billion in shares in Samsung Electronics and cripple the Lee’s family’s grasp on the chipmaker.

To ensure the Lee family retains control, Samsung Life may attempt to market its position to Samsung C&T, which would consequently unload stakes in other units to think of the funds.

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The passage of the law remains uncertain as it might be unpopular with retail investors before a presidential election in early 2022.

The team at Platform Executive hope you have enjoyed the ‘How Samsung’s ownership may change as heirs take over‘ article. Initial reporting via our official content partners at Thomson Reuters. Reporting by Hyunjoo Jin and Joyce Lee. Editing by Stephen Coates.

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