Shake-Up in Key Samsung Assets to Cement Heir's Grip as Succession Looms

Samsung Group's de facto holding company on Tuesday sought another cornerstone as it reconstructs South Korea's biggest conglomerate to smooth the path for management succession, offering more than $8 billion to buy an affiliate with a key stake in flagship firm Samsung Electronics.

Cheil Industries Inc, with interests from construction to fashion, is offering new stock priced at about KRW 8.9 trillion ($8.11 billion) to buy building firm Samsung C&T Corp. After recent market jitters on Samsung's overhaul, shares in both rose nearly 15 percent - taking Samsung C&T's value beyond the offer price to about KRW 10 trillion.

The move combines what analysts consider two key companies in the sprawling family-controlled conglomerate. It would also cement the position of heir-apparent and Samsung Electronics vice chairman Jay Y. Lee, likely to remain top shareholder of the merged entity, as Samsung prepares for the eventual transfer of control from ailing patriarch Lee Kun-hee to his children.

Samsung C&T's 4.06 percent stake in Samsung Electronics, worth nearly $8 billion at current market prices, makes it the third-largest investor in the tech giant after South Korea's National Pension Service and Samsung Life Insurance.

"There will be a solidification of the ownership structure with Jay Y. clearly being the largest shareholder," a person familiar with Samsung strategy told Reuters. The person said that the merger is consistent with changes over the past 12 months as Samsung seeks to a smooth transfer of control from the senior Lee, hospitalised since a heart attack last year.

The latest move still needs to be approved by shareholders and isn't likely to be the last in the group's revamp, which has not been without hitches. In November, Samsung Heavy Industries scrapped a $2.5 billion takeover of Samsung Engineering due to shareholder opposition.

Under the agreed deal, Cheil is offering 0.35 new Cheil shares, issued at a fixed price, for each Samsung C&T share in a deal that values the target at KRW 8.9 trillion. The combined entity, to retain the name Samsung C&T, will also become the biggest shareholder of Samsung's biopharmaceutical business, putting under Jay Y. Lee's control what has been flagged as a prospective new growth driver for the group.

Amid Tuesday's share price surge, some in Seoul said shareholder approval isn't a foregone conclusion.

"Some shareholders that believe that Samsung C&T prices are undervalued...could oppose the deal," said Baek Kwang-jae, a construction analyst at Kyobo Securities. "However, if the share prices continue to rise sharply, shareholders may agree on the merger."

If the deal, due to close by September, goes through, other issues Samsung still has to resolve include inheritance tax if Lee Kun-hee multi-billion dollar stakes in Samsung Electronics - 3.38 percent - or Samsung Life Insurance - 20.76 percent - are passed on to his heirs.

© Thomson Reuters 2015