Samsung Announces Growth Strategy: To Divide In Two

Samsung is likely ready for 2016 to be over. After a dramatic year, the South Korean company has a plan to raise shareholder value and review its corporate structure by splitting the company into two.

This plan, which was announced Tuesday (Nov. 29) on a conference call, comes after months of turbulence. Last quarter, the Galaxy Note 7 both literally and figuratively torched Samsung’s earnings, logging its lowest quarterly profit in two years. It’s still battling to fix the business’ reputation after the issues with the Galaxy phones that caught fire and are no longer allowed to be used on airplanes. Samsung Chairman Lee Kun-hee is still recovering from a heart attack since 2014. And it had to deal with the voluntary recall of specific top-load washers manufactured since March 2011, which caused malfunctions and even injuries.

“We know we must work hard to earn back your trust, and we are committed to doing just that,” said Co-Chief Executive JK Shin earlier this year, as he apologized for the Galaxy Note 7 debacle at a general meeting in Seoul following the release of the company’s results.

But earning back trust may not be the only thing Samsung needs to do for growth. That’s where the idea of splitting the company comes to the forefront. Historically, slicing a company in two is typically done for management reorganization and to increase shareholder value. The benefit of doing so allows for the potential of a higher rate of growth. According to Seoul Economic Daily, as reported by Reuters, U.S. hedge fund management firm Elliott Management suggested the concept. The fund owns 0.6 percent of Samsung.

In the conference call’s visual presentation online, the company said it has plans to enhance shareholder return by allocating 50 percent of the 2016 and 2017 FCF for shareholder returns, increase total dividends by 30 percent and per share by 36 percent, as well as repurchase shares. It will then initiate quarterly dividend payments starting in the first quarter of 2017 and will look to further enhance capital allocation policy beyond next year.

As for board composition and other organizational restructuring, the two new developments in the plan are to invite new members with international corporate experience, as well as have one independent director with “robust global c-suite/board experience by 2017 AGM.” Samsung added that it will create a new Governance Committee made up of independent directors. Samsung’s external advisors will be reviewing the restructuring for the next six months, which will also include crafting a holding company.