Samsung Electronics
Korean giant Samsung Electronics (SSNLF) alerted shareholders on Monday that it will make an announcement regarding shareholder returns on Tuesday. The electronics giant has been under significant outside pressure as activist investors Elliot Management push hard for broad changes.
Samsung has one of the more complicated corporate structures, and many believe it harms the company’s profitability. Elliott has argued for separating the giant into a holding company and an operating company. Besides giving more control to the Lee family, the move would help increase transparency.
While Samsung has not responded to demands brought by Elliott, analysts believe the company is willing to consider the proposals. Included are restructuring, the inclusion of three independent directors on the board, and improved payouts for shareholders.
More Cash for Samsung Shareholders
In terms of payouts, Elliott has called for a massive $26 billion special dividend. Besides the dividend, they are requesting the return of up to 75.00% of free cash flow to investors. While Samsung has not made any plans public, it is expected to agree to at least parts of the proposals.
Simplifying the corporate structure could also take some heat off Samsung, which has been embroiled in South Korea’s current upheaval. The company’s offices have been raided twice in connection to the corruption probe sweeping the government.
Additionally, a simplified corporation would be better suited to compete with giants such as Apple and Alphabet Inc. Several investors have come out in support of Elliott’s proposals, increasing pressure on Samsung to take action or face losses.
Technically Speaking
Looking at Samsung Electronics shares from a technical perspective, the ongoing upward trend is supported by several factors. For one, the 50-day and 200-day moving averages are trending below the price action, acting as support. These areas will act as support against any prolonged pullback or correction in shares.
Besides the moving averages is an ascending triangle formation that has been setting up since the outset of 2016. Formed by a consolidation between the prevailing uptrend and horizontal resistance at 1,692,885, a candlestick close above resistance would signify a breakout. However, with the Stochastic Oscillator in overbought territory, a brief retreat may precede any upside breakout.
Looking Ahead
Should Samsung cave to activist demands, a one-off dividend payment on the scale discussed could be a setback for shares. Normally, shares respond negatively after a dividend has been paid, reflecting less cash on the company’s balance sheet.
However, longer-term, it may be a bold move that rewards shareholders for their patience. Should shareholder distributions become more regular, income investors may reap the rewards of Samsung’s initiatives, adding to positive tailwinds.
[Image Courtesy of Wikipedia]
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