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Samsung Life Insurance to buy stake in Samsung Card from Samsung Electronics

By Song Sung-hoon, Han Woo-ram (Maeil Business News Korea)

Samsung Life Insurance Co., South Korea’s largest life insurer, will acquire a stake in Samsung Card Co. from Samsung Electronics Co., a move that could lay the groundwork for the insurer to transform into a financial holding company of the Samsung Group as it allows the insurer to become the majority shareholder of the credit card company.

Samsung Life Insurance said its board decided to purchase a 37.45 percent stake, or 4.34 million shares, in Samsung Card from Samsung Electronics for 1.54 trillion won ($1.27 billion), or 35,500 won per share. That is 1.42 percent higher than Samsung Card’s closing price of 35,000 won on Thursday.

With the transaction, Samsung Life Insurance’s holding in Samsung Card will increase to 71.86 percent. Other shares are owned by foreign and minority investors.

Photo courtesy of Maeil Business News Korea

Photo courtesy of Maeil Business News Korea

Market analysts say the acquisition represents part of the company’s planned pathway to become a financial holding company of the country’s largest business conglomerate. Under the current law, a financial holding company should be a majority shareholder of subsidiaries with more than a 30 percent stake in each company. Before the transaction, Samsung Electronics was the largest shareholder of Samsung Card.

Samsung Life Insurance also said it will buy back its 3 million common shares (1.5 percent), sending its treasury stock holding to 10.25 percent against the total. Future proceeds from dividend payouts on its own shares can be used to buy more shares from other financial units of Samsung Group or Samsung Life Insurance can transfer its treasury stock to the so-called white knight investor to restore voting rights for the stock, leading to stronger governance structure. All of these moves are linked to efforts to build a financial holding company, market analysts suspected.

Samsung Life Insurance needs roughly 1.8 trillion won for the acquisition and the buyback program. That’s a cinch for the company because its cash and cash equivalents reached nearly 2 trillion won as of the end of September.

One small setback is a prolonged parliamentary gridlock over the passage of a bill designed to encourage Korean chaebols to introduce a holding company structure voluntarily. The bill is still pending even four years at the National Assembly.

Samsung Life Insurance appears to gradually lower its stake in non-financial affiliates. Major non-financial affiliates owned by Samsung Life Insurance include Samsung Electronics (7.2 percent), Hotel Shilla (7.9 percent), S1 (6.1 percent) and non-listed Samsung Economic Research Institute (14.8 percent).

The biggest hurdle in this process will probably be the divesture of its 7.2 percent stake in Samsung Electronics. It is valued at 12.45 trillion won based on Samsung Electronics` closing price Thursday. If the stake is handed over to a third party, the ownership stake of Samsung Electronics held by Samsung affiliates, Chairman Lee Kun-hee and other family members will be lowered from 17.64 percent to 10.44 percent. The problem is that it is difficult to find a white knight investor who will solve this conundrum because the deal is too big.

Samsung Card shares rose 9.6 percent to 38,350 won as of 11:10 a.m. in Seoul trading Friday whereas Samsung Life Insurance slipped 2.3 percent to 107,000 won.