BackSamsung to merge shipbuilding, engineering units amid revamp
Samsung Heavy Industries will combine with Samsung Engineering before the end of the year in a deal valued at about $2.5 billion
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Singapore: Samsung Group, whose billionaire chairman has been hospitalized since May, will merge its shipbuilding and engineering units as South Korea’s largest conglomerate prepares for possible succession.
Samsung Heavy Industries Co., the world’s third-largest maker of ships, will combine with Samsung Engineering Co. before the end of the year in a deal valued at about 2.5 trillion won ($2.5 billion), according to regulatory filings from the two companies on Monday. Shareholders of the engineering company will get 2.36 shares in the vessel maker in a merger that’s based on share prices of 26,972 won for Samsung Heavy and 63,628 won for Samsung Engineering, according to the filing.
“This is the start of more restructuring that’s to be expected from heavy-industry companies within the Samsung Group," said Kim Hyung Gun, an analyst at Meritz Securities Co. in Seoul. “The group seems to have decided that it needed to revamp the units because there were too many overlapping areas, like in the construction business."
Shares of both companies rose as the merger came amid a restructuring ahead of a potential succession at the top of the conglomerate. Lee Kun-Hee, the 72-year-old chairman of phone- maker Samsung Electronics Co., has been hospitalized since suffering a heart attack in May, and the heir apparent is his only son, Lee Jae-Yong. The family is planning to take public two businesses to comply with tighter government limits on chaebol and eventually help pay inheritance taxes that could exceed $5 billion.
Declining profit
South Korea’s government has banned new cross-shareholdings and offered tax breaks for restructuring of chaebols to become more transparent. One company going public is the Samsung Group’s de facto holding company, Cheil Industries, in which Jay Y. Lee, as the patriarch’s son is also called, holds a 25% stake.
Samsung Heavy rose as much as 7% and traded up 5.9% at 28,850 won as of 11:43am in Seoul. Samsung Engineering jumped as much as 12% and traded up 11% at 70,900 won.
Samsung Heavy’s profit has declined in recent years as slowing economic growth and excess capacity led to a drop in new orders. By combining the two companies, the Seoul-based shipbuilder plans to use Samsung Engineering’s expertise for its offshore projects.
‘Good merger’
“This merger will be good for Samsung Heavy in the long term," said Cho Byung Hee, an analyst at Kiwoom Securities Co. in Seoul. “Samsung Heavy will be able to tap Samsung Engineering’s expertise and engineers to help it differentiate itself from other shipyards."
Samsung Heavy has been focusing on growing its offshore operations as overcapacity led to a drop in shipbuilding orders. Contracts for drilling and floating production facilities accounted for 71% of the $37 billion orderbook at the end of July.
Samsung Heavy posted a loss in the first half because delays in some of its offshore projects. The company, whose bigger rivals are Hyundai Heavy Industries Co. and Daewoo Shipbuilding and Marine Engineering Co., won $5 billion in orders in the first seven months of this year, according to its website.
Samsung Engineering posted a loss last year, the first since 2003, because of delays in some of its overseas construction projects.
“This merger is the best option for Samsung Group, considering Samsung Engineering still has some losses to clear from overseas construction projects," Kim at Meritz said.
Lee Kun-Hee, who took over from his father 27 years ago, is South Korea’s richest man, with a net worth of $11.5 billion, as of 29 August, according to the Bloomberg Billionaires Index. Bloomberg
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