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Could Investors Prompt Samsung to Restructure?

Activist investor Elliott Management has prompted Alcoa to add three directors earlier this year, pushed for the recent sale of Cabela’s by Bass Pro Shops, and is now suggesting Samsung shuffle its deck after recent troubles.

Samsung Electronics Co. is being urged by activist investor Elliott Management Corp. to restructure a business that spans Galaxy smartphones, televisions, semiconductors, screen displays and other consumer electronics.

In a 10-page letter and a 31-slide deck released publicly and to Samsung’s board on Wednesday, affiliates of Elliott — Blake Capital LLC and Potter Capital LLC — called on the company to streamline and break into two, pay shareholders a dividend of 30 trillion Korean won ($26.87 billion), dual-list its operating company on the Nasdaq, and add three independent board members.

The proposal comes at a critical time for the South Korean electronics conglomerate. The company has been operating without longtime Chairman Lee Kun-Hee, who has been hospitalized, while also trying to navigate the aftermath of the troubled launch of its latest Galaxy Note smartphones, which had to be recalled after batteries were bursting into flames.

Entities controlled by Elliott, the hedge fund run by billionaire Paul Singer, own about 0.62% of Samsung.

This is not Elliott’s first foray into Korean corporate governance. Last year, Singer’s Elliott Associates LP started a proxy fight to contest the proposed merger of two of Samsung’s units, in which the Lee family’s Cheil Industries Inc., Samsung’s de facto holding company, bid to acquire Samsung C&T Corp., a publicly traded construction company that owned more than $10 billion in shares of Samsung Electronics and other Samsung Group companies.

In that battle, Samsung narrowly defeated Singer when Samsung C&T investors accepted an all-stock buyout from Cheil.

Elliott’s proposals “will deliver better capital returns, better corporate governance, and enhanced shareholder value, for all Samsung Electronics’ shareholders — (while) simplifying, and retaining the founding family’s controlling interest in, the current Samsung group corporate structure, for the benefit of all stakeholders,” the activist wrote in the letter.

The hedge fund often targets technology companies and prods for strategic deals. CDK Global Inc. reached a settlement with Elliott in August, agreeing to add two independent directors to its board, and Citrix Systems Inc., which added Elliott’s U.S. activism head Jesse Cohn to its board last year, is merging its GoTo business with LogMeIn Inc.

Elliott has been one of the busiest activist investors in recent years, but hasn’t launched a proxy battle since Hess Corp. in 2013. The firm pushed for an overhaul at EMC Corp., which soon agreed to be acquired by Dell Technologies in a deal completed last month. 

Homebuilder PulteGroup Inc. added three directors in a settlement with Elliott in July, after a behind-the-scenes campaign. Alcoa Inc. added three directors in a settlement with Elliott in February as the biggest U.S. aluminum producer prepared to split into two companies.

Started by Singer in 1977, Elliott Management’s two funds invest across all its strategies, which include long-short hedge funds, distressed credit, arbitrage, real estate and shareholder activism. The firm recently branched out into private equity, starting Evergreen Coast Capital Corp., which agreed in June to acquire Dell Inc.’s software unit in partnership with Francisco Partners Management.

Just this week, Cabela’s Inc. agreed to be bought by Bass Pro Shops in a $5.5 billion deal combining the outdoor-sports equipment retailers, after Elliott pushed for a sale. Last week, the firm filed as active at Mentor Graphics Corp.

By Adam Satariano and Beth Jinks

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