* Elliott has proposed restructuring of company
* Has also proposed $27 billion special dividend
* Shares climb as much as 5 pct to record high
(Recasts with Samsung comment and share price reaction)
By Se Young Lee and Michael Flaherty
SEOUL/NEW YORK, Oct 6 Tech giant Samsung
Electronics Co Ltd said on Thursday it will
carefully review proposals made by U.S. hedge fund Elliott
Management for restructuring and a special dividend, pushing the
firm's shares to a record high.
The activist investor sent a letter to the world's No. 1
smartphone maker on Wednesday, spelling out changes that include
splitting into a holding company and listing its operating
company on the Nasdaq stock exchange.
Samsung said in a statement that it would carefully consider
the proposals, adding the firm "believes in a constructive and
open dialogue with investors with a view to maximising
Samsung shares jumped as much as 5 percent to mark a new
high in morning trade, outperforming a 0.6 rise for the broader
Elliott's latest activist target is in the middle of a
leadership succession and is under pressure after issuing an
unprecedented recall of at least 2.5 million Galaxy Note 7
smartphones last month.
Samsung's willingness to consider Elliott's proposals helped
the stock shrug off renewed concerns about the recall after
owners of a replacement Note 7 said its battery had begun
smoking in U.S. plane.
This has prompted fresh investigations by the Consumer
Product Safety Commission and the Federal Aviation
Administration. Samsung said it was working to recover the
device and that it cannot confirm whether the device in question
is a replacement Note 7 until it can retrieve it.
Elliott, founded by billionaire Paul Singer, owns 0.62
percent of Samsung's shares. The $27 billion hedge fund also
called into question Samsung's corporate governance and said the
family-run company should add three new independent directors to
Elliott said the new holding company should look at a
possible all-stock merger with Samsung C&T Corp - a
subsidiary that the New York hedge fund targeted in a heated
shareholder battle last year. Elliott ultimately failed to
derail Samsung C&T's merger with sister firm Cheil Industries
Samsung C&T declined to comment on Elliott's merger
U.S. hedge funds rarely target foreign companies for
activist campaigns. Other than Third Point, a hedge fund active
in Japan, Elliott is the only major U.S. activist with a
significant presence in Asia.
With such a small stake and an already adversarial
relationship, Elliott faces an uphill climb in convincing other
shareholders and Samsung's leadership team to implement its
One factor that could help Elliott in its efforts is Samsung
Electronic's more international shareholder base.
Unlike the Samsung C&T battle, where the majority of
shareholders were domestic investors, 11 of Samsung Electronic's
top 20 shareholders are international investors, according to
Thomson Reuters data.
U.S. activist ValueAct Capital was given a board seat at
Microsoft Corp. in 2013, while holding only 0.8 percent
of the company's stock.
According to a person familiar with the matter, Elliott is
seeking to speak with Samsung's leaders and board, and work with
the company collaboratively to implement its proposed changes.
Samsung did not immediately comment on whether it has been in
communications with Elliott.
Elliott's proposals come as Samsung Group has undertaken a
series of moves to pave the way for a stable handover from the
ailing, 74-year-old Lee Kun-hee to his three children.
Lee's son, Jay Y. Lee, 48, is seen as the de facto leader of
Samsung Group as his father remains incapacitated following a
2014 heart attack. The younger Lee was nominated as a board
director of Samsung Electronics last month - a role that analyst
says will allow him to take a more public role in major
Speculation on how Samsung could restructure its business
has loomed for at least a year, with analysts offering up a
variety of options, including the so called "opco/holdco"
division that Elliott proposed on Wednesday.
Elliott nodded to Samsung's recent stock buyback, but said
its "substantial and excess net cash position comes at a very
real and tangible cost to shareholders."
Elliott said it wants Samsung to pay a 30 trillion won ($27
billion) special dividend from its $70 billion cash pile.
($1 = 1,111.1600 won)
(Additional reporting by Rishika Sadam; Editing by Nick
Zieminski and Edwina Gibbs)