Samsung to merge shipbuilding, engineering units amid revamp

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SINGAPORE: Samsung Group, whose billionaire chairman has been hospitalised since May, will merge its shipbuilding and engineering units as South Korea’s largest conglomerate prepares for possible succession.

Samsung Heavy Industries Co, the world’s third-largest maker of ships, will combine with Samsung Engineering Co before the end of the year in a deal valued at about 2.5 trillion won (RM7.8 billion), according to regulatory filings from the two companies yesterday.

Shareholders of the engineering company will get 2.36 shares in the vessel maker in a merger that’s based on share prices of 26,972 won for Samsung Heavy and 63,628 won for Samsung Engineering, according to the filing.

“This is the start of more restructuring that’s to be expected from heavy-industry companies within the Samsung Group,” said Kim Hyung Gun, an analyst at Meritz Securities Co in Seoul. “The group seems to have decided that it needed to revamp the units because there were too many overlapping areas, like in the construction business.”

Shares in both companies rose as the merger came amid a restructuring ahead of a potential succession at the top of the conglomerate. Lee Kun Hee, the 72-year-old chairman of phone maker Samsung Electronics Co, has been hospitalised since suffering a heart attack in May, and the heir apparent is his only son, Lee Jae Yong. The family is planning to take public two businesses to comply with tighter government limits on chaebol and eventually help pay inheritance taxes that could exceed US$5 billion (RM15.8 billion).

South Korea’s government has banned new cross-shareholdings and offered tax breaks for restructuring of chaebols to become more transparent. One company going public is the Samsung Group’s de facto holding company, Cheil Industries, in which Jay Y Lee, as the patriarch’s son is also called, holds a 25% stake.

While Samsung Heavy will keep its name for now, the company may consider changing it later, the two companies said in a joint statement. There won’t be any change to the workforce, they said. Samsung Heavy has about 14,300 workers and Samsung Engineering about 7,000, according to their latest financial statements.

The combined entity plans to increase sales to 40 trillion won in 2020, from 25 trillion won last year. — Bloomberg

A filepic of Samsung Heavy Industries’ shipyard in Geoje Island, South Korea. The group has decided to revamp the units because there are too many overlapping areas, like in the construction business.



This article first appeared in The Edge Financial Daily, on September 2, 2014.