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Smartphone maker Samsung backs away from planned split

The world ’ s biggest smartphone maker Samsung , assailed by a shambolic recall and embroiled in South Korea’ s wide- ranging corruption scandal , on Friday backed away from a planned corporate restructuring.

Following the embarrassing recall of the Galaxy Note 7 smartphone and under pressure from activist shareholders to improve corporate governance , Samsung Electronics said last year that it was considering splitting the company in two .

Its vice- chairman Lee Jae -Yong , heir to the parent Samsung group , has since been arrested and indicted for bribery , along with four other senior executives , in connection with the graft scandal that saw ex -president Park Geun -Hye impeached.

But at the Samsung Electronics annual general meeting in Seoul, board chairman Kwon Oh -Hyun said the firm had reviewed legal and tax issues around proposed division into a holding company and an operating unit , and identified “ some negative effects ” .

He did not elaborate , but told shareholders: “ At this moment , it seems difficult to carry it out. ”

Shares in Samsung Electronics — the group ’ s flagship subsidiary — closed 0. 72 percent down , having hit record highs this year on expectations of higher profits.
Samsung SDS plunged 8. 47 percent and Samsung C & T was down 7. 27 percent.

Various Samsung units have cross – shareholdings in other parts of the group , a byzantine structure that enables the Lee family to control the business empire , which has revenues equivalent to a fifth of South Korea’ s GDP .

A promised new governance committee , made up of independent outside directors, will still be set up by the end of April, Kwon said .

Corruption scandal

But Samsung Electronics had so far been unable to recruit “ foreign directors who have experience as chief executive officers of global companies” to join it , he said “ due to uncertainties in the internal and external environment surrounding the company” .

Vice- chairman Lee has effectively been at the helm of the Samsung group since his father suffered a heart attack in 2014.

His indictment sent shockwaves through the company and triggered the announcement of a major reform of its top-down management style .

The corruption scandal centres on the former president ’ s secret confidante Choi Soon- Sil , who is accused of using her ties with the head of state to force local firms to “ donate ” nearly $70 million to non -profit foundations, which Choi allegedly used for personal gain .

Samsung was the single biggest donor to the foundations and is also accused of separately giving millions of euros to Choi to bankroll her daughter ’ s equestrian training in Germany.
In total it handed over nearly $40 million.

One of the favours Lee allegedly sought from Park was state approval for a controversial merger of two Samsung units in 2015, seen as a key step to ensure a smooth transfer of power to him.

The deal was opposed by many shareholders who said it had wilfully undervalued one of the firms . But it eventually went through after the national pension fund — a major Samsung shareholder — approved it.

We’ re sorry ’

Samsung has insisted the payments were charitable contributions it was obliged to make under pressure from officials , and not bribes .

But Kwon apologised at the meeting, saying : “ We ’ re sorry that we have created a stir in society . ”
The firm would review all its charitable donations , he said . “ We ’ ve come to realise that our donations could be used for other purposes than we had intended . ”

Campaigners say that the controversy could complicate Samsung’ s proposed corporate split , as it has cast a renewed light on the cosy ties traditionally enjoyed by the government and family-controlled conglomerates known as “ chaebols” that dominate the economy.

Groups including Samsung have increasingly become objects of public scorn as criticisms mount over their management practices , including rapid promotions for family members — some of whose antics have battered the firms ’ images.

Millions of South Koreans who took part in weekly street rallies demanding Park’ s removal also called for the arrest of the tycoons involved in the scandal , among them the leaders of Hyundai , SK and Lotte.

Chung Sun- Sup , the head of chaebol. com, a private watchdog on conglomerates , said the split plan could enhance the Lee family’ s control over Samsung operating units, and was coming at a time of greater public and parliamentary scrutiny .

“The company is unlikely to push it through for a considerable time, ” Chung told AFP.

source: PUNCHNG

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