Samsung heir's jail sentence disrupts management succession plans

[Graphics by Song Ji-yoon]

Samsung Group’s hereditary succession would have to be put on hold after the conglomerate’s heir Jay Y. Lee received a two-and-a-half-year jail sentence on embezzlement and bribery charges.

Lee, 52, would be returning to jail after serving roughly a year behind bars in 2017-2018 for bribing a confidante of Korea’s impeached president Park Geun-hye. He was released on a suspended prison term in 2018. The Monday verdict from the Seoul High Court is the result of a retrial ordered by the Supreme Court. His prior prison time would count toward his new sentence, meaning Lee could walk free next year if granted early parole.

Lee, who currently serves as Samsung Electronics Co.’s vice chairman, was slated to become the new chairman following the death of his father, Lee Kun-hee, in October 2020. His appointment, along with the announcement of ownership restructuring plans, had been scheduled for March during Samsung Electronics’ annual shareholder meeting. But the latest sentence is likely to delay the plans by at least a year and a half.

[Photo by Lee Chung-woo]

Korea’s ruling party is also pushing for new laws that could restrict corporate chiefs who have received prison sentences from sitting on the board, a prospect that could cast a cloud over Lee’s future.

The latest verdict is likely to forestall the conglomerate’s plans to reorganize ownership around the de-facto holding company Samsung C&T and the crown jewel Samsung Electronics. As of early January, the owner family and affiliates control Samsung C&T with a combined 33.43 percent stake, with Lee holding 17.33 percent and the late chairman holding 2.88 percent.

Samsung C&T has major stakes in Samsung Life Insurance (19.34 percent), Samsung Electronics (5.01 percent) and Samsung Biologics (43.44 percent). Samsung Life Insurance has an 8.51 percent interest in Samsung Electronics, which in turn owns 31.49 percent in Samsung Biologics.

For Lee to consolidate his grip over the empire, Samsung Life’s stake in Samsung Electronics needs to come under Samsung C&T and the owner family.

But legislative efforts are underway from the ruling party to revise the insurance law. If the act passes the National Assembly later this year or early next year, Samsung Life and Samsung Fire & Marine Insurance would need to keep their stake in

Samsung Electronics under 3 percent of their total assets, a move that could shake Lee’s control over Samsung Electronics.

Industry observers say Samsung C&T does not have the tens of billions of dollars needed to acquire all of Samsung Life’s stake in Samsung Electronics.

Various financing ideas have been floated. One scenario sees Samsung C&T selling its stake in Samsung Biologics to buy Samsung Electronics stake. Another suggests Samsung Electronics could be demerged into investment and operation units, with the investment unit acquiring Samsung Electronics’ operation unit stake owned by Samsung Life and Samsung C&T acquiring the investment unit.

Lee also needs to foot an inheritance tax bill of nearly $10 billion if he is to acquire his late father’s stakes in Samsung subsidiaries.

[ⓒ Maeil Business Newspaper & mk.co.kr, All rights reserved]