Samsung to Buy Back $2 Billion Worth of Shares -- Update

By Jonathan Cheng And Min-Jeong Lee 

SEOUL-- Samsung Electronics Co. said it would repurchase $2 billion worth of its shares, its first buyback in seven years, as it deploys a part of its hefty cash reserve to shore up its flagging share price.

In a regulatory filing after the close of trading Wednesday, Samsung said it was returning the cash to improve shareholder returns and stabilize its stock price, which is down 12% so far this year.

The buyback announcement comes after a number of high-profile stockholders and analysts have publicly called for improved shareholder returns. Samsung's dividend yield, which measures a company's annual dividend in relation to its share price, is around 1.2%--about half that of peers such as Intel Corp. and Taiwan Semiconductor Manufacturing Co.

The South Korean technology giant said that the buyback will include 1.65 million common shares, worth 1.96 trillion Korean won ($1.8 billion), and 250,000 nonvoting preferred shares, valued at 230 billion won, based on Tuesday's closing price. Samsung shares finished the day up 0.9% at 1,201,000 won (US$1,080), before the announcement.

The buyback will take place over the next three months, but Samsung said it hasn't decided whether to retire the repurchased shares or hold the stock in the company's treasury. The company was also silent on the issue of its dividend.

What happens to the shares is an important question, said Peter Yu, an analyst for BNP Paribas in Seoul.

If Samsung holds the shares in its treasury, as Mr. Yu expects it to do, the stock could play a role in the company's ongoing succession plan, he said. Since Samsung chairman Lee Kun-hee was hospitalized in May following a heart attack, Samsung has made a series of moves that are widely seen as paving the way for a handover of control to Jay Y. Lee, Mr. Lee's 46-year-old son.

Samsung listed its information technology subsidiary in a $1.1 billion public listing earlier this month and, on Wednesday, said it would sell stakes in its chemical and defense units to another Korean company for $1.7 billion. Mr. Yu said that holding several billion dollars worth of extra shares in its coffers could allow Samsung to merge with one of its sister companies through a share swap--without having to issue new shares.

"We don't know what kind of scenario will unfold, but whatever they choose, it's very plausible that treasury shares will be involved," Mr. Yu said.

A spokesman for Samsung Electronics said the share buyback plan isn't succession-related.

If, on the other hand, the stock is bought back and then retired, the pool of Samsung shares on the open market will shrink, which could give the company's flagging stock price a lift.

In recent months, company executives openly resisted calls by investors and analysts to improve returns.

"If you're saying, 'Why don't we take a bunch of cash that we're holding and just buy a bunch of shares,' my company's position on that is that we believe we may need to use that cash on things that are possibly to come, like new technologies," investor relations head Robert Yi told one investor at a public event in Seoul in November 2013.

That refrain was echoed by management for most of the past year, even as investors continued to apply pressure.

The size of the share buyback is in line with the company's earlier policy. Between 2004 and 2007--when Samsung drew most of its profits from semiconductors, not smartphones--the company bought back at least 1.8 trillion won worth of shares each year.

Since then, Samsung's share price has more than tripled--a period in which Samsung didn't buy back any stock. Since the end of 2012, Samsung stock has tumbled by more than 20%, meaning that the company is buying the stock now at a relative bargain compared with its share price over the past two years.

The share buyback is just the latest major expenditure announced in recent weeks by Samsung, which sits atop one of the biggest corporate cash piles in the world, with $60 billion. In the past two months, Samsung has announced investments totaling up to $18 billion in production facilities in South Korea and Vietnam.

Write to Jonathan Cheng at [e-mail] and Min-Jeong Lee at [e-mail]

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