The previously Samsung announced merger between South Korean shipbuilder Samsung Heavy Industries and Samsung Engineering has been cancelled as shareholders opposed the move, the shipbuilding giant said in a filing to Korea stock exchange yesterday.
The shareholders voiced their concern that the USD 2.5 billion deal exceeded the agreed amount of stock purchase ceiling adding that, as a result, it could be damaging to shareholder value.
Samsung Heavy Industries has cancelled the deal as shareholders opposing the merger requested the companies buys back their shares.However, according to the paper, the companies opted against the merger as the price they would have to pay the shareholders requesting a buy-back was deemed too high.
“If both companies want to become one, they have to pay combined 1.63 trillion won ($1.47 billion) for the share purchase. The amount is much larger than expected, so we decided not to go ahead with the merger,”
The Korea Times has quoted a joint statement by the two companies.
According to the filing, shareholders had requested the two companies to repurchase their stock for a higher-than-budgeted USD 1.5 billion, which resulted in the decision to pull back as the benefits were not as expected, especially since both companies’ shares took a plunge recently.
The merger between Samsung Heavy Industries and Samsung Engineering was decided in September, the objective being creatiation of a “world-class total solution provider for shipbuilding and onshore and offshore services.”
According to SHI, the merger ratio was supposed to be fixed at 1:2.36.
Under the plans, Samsung Heavy Industries issued new stocks so that the shareholders of Samsung Engineering can exchange their shares for the Samsung Heavy Industries’ shares and receive 2.36 Samsung Heavy Industries shares for every Samsung Engineering share they own.
Samsung Engineering, which has focused its business in onshore hydrocarbon plants, was supposed to diversify into high value-added projects such as onshore LNG and offshore plants by securing Samsung Heavy Industries’ offshore plant fabrication capabilities.
The merger was intended to give the two companies a chance to become a global top-tier EPC (Engineering, Procurement and Construction) company.The decision to pull back from the merger could hamper the restructuring plans of the Samsung Group.
Samsung announced on Wednesday (Nov 26) its US$1.7 billion sale of stakes in four affiliates and a US$2.0 billion share buyback as the South Korean giant steps up restructuring efforts ahead of a generational ownership succession.
The sale of its petrochemical and defense units to the Hanwha conglomerate, which has major petrochemical holdings, is expected to be finalized in the first half of next year, Samsung Group said in a statement. The deal involves Samsung Electronics and other group affiliates selling their combined stakes in defense firm Samsung Techwin and Samsung General Chemicals.
A 50-per cent stake held by Samsung General Chemicals in its joint venture with the French energy giant Total, called Samsung Total, will also be sold to Hanwha, along with Samsung Techwin's 50-per cent holding in a joint venture with French defense firm Thales.
It marks the first sale of Samsung affiliates since the group was forced to shed its struggling carmaking unit in 1997 during the Asian financial crisis. The group, comprised of dozens of units including the flagship Samsung Electronics, earns a collective revenue equal to around 20 per cent of South Korea's annual economic output.
Separately on Wednesday, Samsung Electronics announced a share buyback plan valued at 2.2 trillion won (US$2 billion) - a move to appease shareholders frustrated with a slumping share price. The buyback from Thursday to February involves 1.96 trillion won worth of common shares and 229.5 billion worth of preferred shares, the firm said in a regulatory filing.
The announcement came after trading closed on the Seoul stock market. The world's top maker of mobile phones and TVs has been under growing pressure to boost returns for shareholders, including increasing dividends. Its share price tumbled more than 10 per cent this year as growth in the key smartphone business began to lose steam, sapping profits. Samsung Electronics last month reported its smallest quarterly profit in nearly three years.
The family-run Samsung Group, currently chaired by Lee Kun-Hee, has merged, broken out or newly listed some of its key units in recent years as he prepares to hand over helm to his son, J Y Lee. The founding Lee family has been under growing state pressure to unravel its complex cross shareholdings and make its governing structure more transparent.
The sell-off of the units indicates a desire to streamline the behemoth so as to concentrate on its key profit-making units, said Kim Ji-San, analyst at Seoul-based Kium Securities. "The deal shows Samsung is determined to shed non-core units deemed not competitive enough globally and to focus on key businesses like electronics, finances, construction and engineering," Kim said.
Samsung Techwin, a developer of security equipment and aerospace technologies, reported a net profit of 133 billion won last year, but has amassed a net loss of 14.5 billion for the first three quarters of this year.
Samsung's restructuring has not always been smooth sailing. Last week, it had to scrap a merger between two major units - Samsung Heavy Industries and Samsung Engineering - due to the spiraling cost of buying back stock from shareholders opposed to the deal.
Collection by M.Ajmal Khan.