The Korea Herald


[Herald Interview] Palliser CIO skeptical of Samsung C&T stock cancellation plan

Ex-Elliott executive denies short-term profit-seeking speculation amid heightened shareholder activism at Samsung’s de facto holding company

By Park Han-na

Published : Dec. 28, 2023 - 14:52

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Palliser Capital founder and Chief Investment Officer James Smith (Palliser Capital) Palliser Capital founder and Chief Investment Officer James Smith (Palliser Capital)

British activist investor Palliser Capital founder said Samsung C&T’s five-year treasury stock retirement plan won’t be helpful to shore up its stock price, urging swift action to resolve investors’ concerns over its governance structure.

“Cancellation of treasury shares has been mischaracterized as a shareholder return by the company,” Palliser Capital founder and Chief Investment Officer James Smith told The Korea Herald in an email interview.

“Management has said that canceling treasury shares over five years will help provide a long-term return to shareholders; in reality, it has no impact on intrinsic value per share,” he said.

In February, Samsung C&T, the de facto holding company of Samsung Group, decided to retire all of its treasury shares worth about 3 trillion won ($2.33 billion) over five years. In April, it canceled some 1.3 million shares, or 5.2 percent, of the total treasury shares.

“We believe that action so far has been clearly shown to be insufficient in removing the governance and dilution concerns and meaningfully impacting the share price,” Smith said.

Palliser, which owns a 0.62 percent stake in Samsung C&T, urged the Korean firm to make wiser capital allocation, improve governance and transparency, and streamline its complex group structure to a holding company structure. Accepting that advice would lift Samsung C&T’s share price by as much as 170 percent, the hedge fund estimated in a press release on Dec. 6.

Prior to founding Palliser in 2021, Smith worked at Elliott Investment Management for 20 years, which is known for its activism campaign launched against Samsung affiliates. Smith also took a leading role in shareholder activism against the controversial merger between Samsung C&T and Cheil Industries in 2015.

“Samsung C&T’s deep valuation gap has persisted and worsened over many years, and the company exemplifies the 'Korea Discount' phenomenon, which regulators have rightly identified is an issue of concern for the domestic market and economy,” he said.

Palliser is one of the activist funds calling for change at the Samsung company to raise its lukewarm share price. Skepticism has been growing here that the funds with tiny stock ownership may attempt to seek short-term profits ahead of a general gathering of shareholders in March.

The Palliser CIO flatly denied the speculations.

“The Palliser team has a deep history as longstanding shareholders in Samsung C&T dating back over a decade. We have a great appreciation for its legacy and the quality of its assets and a deep conviction in its potential to realize its intrinsic value and lead the economic future of South Korea,” he said.

In detail, Palliser asserted that the board of Samsung C&T should improve diversity in gender, industry and C-suite experience, pointing out that the current members hold insufficient relevant industry or senior management experience.

It also suggested naming one chief executive to oversee the company’s multiple business divisions -- trading, investment, fashion and construction -- now that each of them has their own heads.

“Without one overall CEO, hard but necessary decisions on capital allocation, including portfolio optimization, are too easily avoided,” he said.

Smith believes that such change would “substantially lower tax on dividends paid from subsidiaries due to the increased shareholding in them” while “valuation overhangs on key group companies are removed as they become more investable through enhanced corporate governance and reduced inefficiencies.”

“The deep undervaluation and its underlying causes have been occurring for many years. Investors are frustrated at the lack of action and many equity analysts have also expressed concerns,” he said.

“We believe that now is the time for the company to take meaningful steps forward to enhance value,” he said.