Palliser Capital urges Samsung C&T reform for $25 bn value-up
Hyun-Woo Oh
Dec 07, 2023 (Gmt+09:00)
London-based hedge fund Palliser Capital said on Wednesday that Samsung C&T Corp. is 63% intrinsically undervalued and could increase its value by $25 billion through governance and transparency improvement, as well as return-oriented capital allocation.
With a 0.62% stake in the construction and trading firm, Palliser urged Samsung C&T, the de-facto holding company of Samsung Group, to take “clear and actionable measures to “eradicate that discount” and "unlock significant long-term value.”
It outlined the recommendations to Samsung in a presentation published on Wednesday, saying its team has been investing in the South Korean company for over a decade.
“Palliser’s presentation highlights the $25 billion disparity between Samsung C&T’s share price and its intrinsic market value, equivalent to a 63% discount,” it said in a statement.
The estimated value it claims can be unlocked is higher than Samsung C&T’s market capitalization of 22.3 trillion won ($17 billion) as of Wednesday’s close.
If the additional value is realized, it will translate into an upside share price potential of up to 170%, Palliser added.
20-YEAR VETERAN AT ELLIOTT MANAGEMENT
Palliser founder and Chief Investment Officer James Smith said his company has a great understanding and appreciation for Samsung C&T and its high-quality assets.
Smith led Elliott Management Corp’s Hong Kong operations until he left the activist fund in 2020 to set up Palliser Capital.
Samsung C&T has been a frequent target of activist funds because it is at the top of Samsung Group’s complex and cross-holding ownership structure.
Lee, the son of the group’s late Chairman Lee Kun-hee, is the largest shareholder of Samsung C&T with an 18.1% stake as of the end of September.
Combined with the shares held by its founding family members and other friendly shareholders, Samsung Group has a 33.63% controlling stake in the construction and trading arm.
“Palliser believes Samsung C&T has an opportunity to proactively lead on governance and capital allocation and change the narrative on the “Korea Discount” for the benefit of not only Samsung C&T shareholders, but the Korean stock market and broader society as a whole,” it said in the statement.
Specifically, it urged Samsung to direct capital to the best opportunities available to the company and deliver a fair return to shareholders; ensure its assets and investment plans are properly understood by the market; and reduce structural inefficiencies as the parent group seeks to transform into a holding company structure.
ANOTHER ACTIVIST FUND
Palliser’s move came one month after another activist fund City of London Investment Management Co. sent a letter to Samsung C&T’s top management to propose 500 billion won worth of share buybacks until the end of 2024 and a dividend of 4,500 won per share for 2023.
City of London Investment argued in the letter that Samsung C&T has made insufficient efforts to address “the significant long-term share price underperformance and the unacceptably wide discount to intrinsic value.”
The City of London Investment said Samsung C&T’s shares has yielded a negative 25.3% return since it absorbed Cheil Industries in 2015 as of mid-September this year. That is equivalent to a more than a 66% discount of its intrinsic value, according to the activist fund.