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The Korea Herald
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THE INVESTOR
March 28, 2024

Samsung

FSC’s suspension order puts brakes on Samsung heir’s leadership succession

  • PUBLISHED :November 18, 2018 - 17:52
  • UPDATED :November 18, 2018 - 17:52
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[THE INVESTOR] The latest decision by Korea’s financial authority, which suspended trading of Samsung BioLogics shares on the stock market last week, not only deals a blow to the biotech company but also puts off a high-profile succession scheme for the conglomerate, controlled by descendants of the founder, industry watchers said Nov. 18.

On Nov. 14, the Financial Service Commission concluded that Samsung BioLogics had “arbitrarily interpreted the accounting rules and intentionally breached them in 2015.”




The FSC’s conclusion has sparked calls to reinvestigate a controversial merger between Cheil Industries and former Samsung C&T, viewed as a way of passing the baton from the ailing Chairman Lee Kun-hee to his only son, Vice Chairman Lee Jae-yong. Samsung C&T is the largest shareholder in Samsung BioLogics with a 43.4 percent stake. Lee Jae-yong is the largest shareholder with 17.08 percent.

“Samsung’s final goal was to have Samsung C&T acquire Samsung Life Insurance’s stake in Samsung Electronics by using funds from Samsung BioLogics,” said Park Ju-gun, head of market watcher CEO Score.

“If the book-cooking was not revealed, the succession would have (approached) completion,” he said. “For the remaining issues, we will have to watch how Lee Jae-yong will acquire favorable shares in Samsung Electronics by mobilizing Samsung C&T and Samsung Life Insurance.”

Lee’s plan to inherit his father’s leadership will be delayed due to continuous opposition from political circles and civic activists, and will also damage his integrity as the leader of the nation’s largest conglomerate, said Lee Byung-tae, a business management professor at the Korea Advanced Institute of Technology. Vice Chairman Lee is the de facto leader of the electronics giant and other affiliates since he became a registered executive director in October 2016. The Fair Trade Commission named the heir as the chief of Samsung in May as well. 

“If there were no pressure from the government and political circles, Lee’s succession process (would surely) have been completed,” Lee said. “As seen in the Samsung BioLogics case, mobilizing affiliates is a common way of securing funds and resources for a stable leadership position, although it is viewed as an expedient.”

“The bio unit’s accounting fraud is logically not related to Lee’s succession, but it seems to be so when put into the context of the chaebol’s inheritance of their wealth to their descendants,” the professor added.

While claiming that the accounting fraud allegation has nothing to do with Vice Chairman Lee’s leadership succession, Samsung fears that the FSC’s conclusion could affect Lee’s remaining trial and further raise controversy over inheritance issues. 

“Considering the timing of the accounting fraud in late 2015, (there is no reason) at all to link the issue with the merger between Cheil Industries and Samsung C&T,” said a Samsung official. “What we are concerned about is the FSC conclusion could affect an ongoing appeals trial to nullify the merge and the Supreme Court’s ruling on the ex-presidential scandal involving Lee.”

Another challenge Samsung is facing that the National Assembly is planning to enact a revised insurance law that limits a nonfinancial company’s stake in a financial unit to 3 percent. Considering this, it is unclear how Samsung Life will hand over its 7.93 percent stake in Samsung Electronics.

According to some market rumors, a likely scenario is to have Samsung C&T purchase about 4 percent of that stake, which is worth around 20 trillion won, to reinforce Lee’s dominance over the electronics unit. 

By Song Su-hyun/The Korea Herald (song@heraldcorp.com)

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