Samsung, SK hynix Diverge On Shareholder Returns
Samsung Electronics and SK hynix, the two monumental pillars of the domestic semiconductor industry, are capturing the stock market’s attention by consecutively announcing shareholder return policies of an unprecedented scale. Following SK hynix’s introduction of a plan to acquire and cancel 40 tril
Samsung Electronics and SK hynix, two dominant forces in the South Korean semiconductor market, have recently unveiled their ambitious shareholder return initiatives, leaving the stock market abuzz with excitement. While both companies aim to boost shareholder value, their chosen strategies starkly contrast, each riddled with unique challenges and regulatory constraints.
Samsung Electronics has opted for a cash dividend approach to return up to 50% of its free cash flow over the 2024-2026 period. This amounts to approximately 30 trillion won in regular dividends, expected to be paid out in the third quarter alone. The decision to favor cash dividends over treasury share cancellation stems from a complex legal landscape, specifically the Act on the Structural Improvement of the Financial Industry.
This act restricts large conglomerates affiliated with financial companies from holding more than 10% in non-financial subsidiaries. If Samsung Electronics were to cancel treasury shares, the proportion of shares held by affiliated insurance giants - Samsung Life Insurance and Samsung Fire & Marine Insurance - would automatically increase, potentially breaching this regulatory threshold.
To mitigate this risk, Samsung decided to prioritize cash dividends, which may not immediately boost stock prices but offer more stability and mitigate potential governance issues.
In contrast, SK hynix has taken a different route, actively acquiring and canceling 24.07 million shares, representing 3.3% of its total issued shares, valued at roughly 40 trillion won. This move was deliberate, aiming to address the complicated regulations that govern holding companies under the Monopoly Regulation and Fair Trade Act.
The Act stipulates that SK Square, a parent holding company of SK hynix, must maintain a minimum stake of 20% or more in its listed subsidiary. SK hynix's recent public offering of American Depositary Receipts on the Nasdaq had a dilutive effect on SK Square's stake, bringing it down to the minimum threshold of 20%. A further drop, even by 0.01%, would trigger a regulatory violation.
By canceling treasury shares, SK hynix can ensure SK Square's stake remains above this critical level, theoretically eliminating the risk of regulatory breaches while also sending a strong positive signal to shareholders. This approach, focused on share cancellation, is a strategy often seen as more beneficial for short-term stock price appreciation due to the immediate reduction in outstanding shares.
Written by urgent.news from BusinessKorea's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
