Samsung, SK, Hyundai Motor and LG lead trillion-won share cancellations as new law boosts returns but weakens takeover defenses
South Korea’s biggest conglomerates are rushing to scrap trillions of won in treasury stock, as a new law forces companies to retire shares long used as a quiet but powerful tool for control — boosting shareholder returns while stripping firms of a key line of defense.
The revised Commercial Act, which took effect March 6, requires newly acquired treasury shares to be canceled within one year and existing holdings within 18 months. The rule has triggered a wave of large-scale cancellations across corporate Korea, with Samsung Electronics, SK Inc. and other major groups moving quickly to comply.
Samsung Electronics announced it plans to cancel 87 million treasury shares, including preferred stock, within the first half of the year. The amount, valued at around 16 trillion won ($10.2 billion), represents a whopping 82 percent of the company’s total treasury holdings.
SK Inc., the holding company of SK Group, also followed suit, announcing it will retire 14.69 million treasury shares out of the 17.98 million shares held by the company, all except 3.29 million reserved for employee compensation.
The retirement, valued at around 4.8 trillion won, is nearly 20 percent of its total outstanding stocks, making it one of the largest such moves.
Other conglomerates announced similar moves: Hyundai Motor said it would buy back and cancel 400 billion won worth of shares, while LG Corp is set to cancel 250 billion won worth of treasury shares in the first half.
Boosting shareholder value
The treasury share provision is central to President Lee Jae Myung’s broader reform agenda to improve corporate governance and boost stock market valuation. The flagship initiative, known as “Kospi 5000,” aims to eliminate the so-called “Korea discount” — the low valuation of Korean companies’ stocks relative to global peers, attributed to weaknesses in corporate governance.
For global investors, the reform is a welcome development, raising expectations for improved capital efficiency and more predictable shareholder returns. By retiring treasury shares, it reduces the total share count, which mechanically increases earnings per share and can enhance dividend payouts.
“When treasury shares are canceled, and the number of outstanding shares declines, share prices rise under basic supply and demand dynamics, while EPS and dividends per share increase even if the company’s overall valuation and total dividend payout remain unchanged,” said Chung Hae-chang, an analyst at Daishin Securities.
“Through the revision of the Commercial Act, share buybacks are now directly linked to a reduction in outstanding shares, aligning with global standards where such actions enhance intrinsic equity value.”
At cost of corporate flexibility
Despite the potential to enhance corporate value, the initiative is creating headaches for conglomerates, as treasury shares have long served as a versatile financial tool.
Companies have used them in mergers and acquisitions, for employee compensation, and as a buffer during market downturns. In times of crisis, they could also be sold or pledged as collateral to secure liquidity.
Perhaps most critically, treasury shares have functioned as a shield against hostile takeovers. Unlike in many other markets, Korean firms lack widely used defenses such as poison pills — which allow existing shareholders to buy discounted shares to dilute a hostile bidder — or dual-class structures that grant controlling shareholders greater voting power.
Past cases highlight their importance. In 2003, SK Corp transferred a 4.5 percent treasury stake to friendly parties to fend off hedge fund Sovereign Asset Management. Hyundai Elevator and Hyundai Motor also used treasury holdings to counter challenges from Schindler Group and Elliott Management, respectively.
Business groups warn that losing this flexibility could leave companies more exposed to activist investors and internal control disputes.
“Companies have no choice but to comply and cancel treasury shares,” an industry official said on condition of anonymity. “While the measure may boost shareholder value, it reduces flexibility, especially in times of crisis. Exceptions exist, but they are narrowly defined, limiting timely use.”
Under the revised act, firms may retain treasury shares for limited purposes — such as employee compensation, stock ownership plans, or specific business needs like technology adoption or financial restructuring — provided these grounds are explicitly stated in their articles of incorporation.
Such cases require approval from both the board and shareholders at annual general meetings. As a result, major firms are moving to amend their articles to define permissible uses of treasury shares.
According to Daishin Securities, more than 35 Kospi-listed companies — including SK hynix, Celltrion, Mirae Asset Securities and Lotte Corp. — have proposed such revisions at this year’s shareholder meetings.
By Ahn Sung-mi (sahn@heraldcorp.com)
