[Edaily Reporter Kim Kyung-eun ] Life Asset Management clarified regarding its proposal to SamsungElectronics(005930)for the repurchase and cancellation of treasury stock that “the intention is not to give preferential treatment solely to preferred shares.” The company emphasized that it actively welcomes a plan to repurchase and cancel both common and preferred shares together, stressing that the core of the proposal lies not in the repurchase of preferred shares per se, but in maximizing the repurchase and cancellation of treasury stock.

Life Asset Management issued a statement on the 6th, stating, “The core of the proposal is to maximize the repurchase and cancellation of treasury stock,” and added, “If SamsungElectronics decides to cancel both common and preferred shares, we would actively welcome that decision.” This is a rebuttal to recent concerns raised by some that repurchasing and canceling only preferred shares could raise issues of fairness with common shareholders.

Previously, on the 14th of last month, Life Asset Management sent a Seohan to SamsungElectronics’ board of directors and management, demanding an expansion of the buyback and cancellation of treasury stock. SamsungElectronics replied on the 29th of the same month, stating, “We are continuously considering measures to address the discount of preferred shares relative to common shares and to enhance the value of preferred shares accordingly.”

Life Asset Management’s proposal to prioritize the repurchase and cancellation of preferred shares stems from constraints related to SamsungElectronics’ corporate governance structure. Financial affiliates such as Samsung Life Insurance(032830)and SamsungFire&MarineInsurance(000810) are limited to holding a combined stake of up to 10% in SamsungElectronics’ common stock under the Act on the Improvement of the Structure of the Financial Industry (the Financial-Industrial Separation Act). If SamsungElectronics buys back and cancels its common stock, the total number of issued shares will decrease, thereby increasing the financial affiliates’ ownership percentage. The explanation is that, in such a case, the affiliates may have to sell some of their shares to comply with the 10% limit.

In contrast, canceling non-voting preferred shares does not raise such ownership ratio issues. Another reason preferred shares are presented as a practical alternative is that SamsungElectronics’ preferred shares have recently been trading at a discount to common shares, allowing the company to purchase and cancel more shares with the same amount of capital.

Life Asset Management pointed out, “SK hynix, which does not face such corporate governance issues, decided last August to buy back 40 trillion won worth of its own shares and cancel them all, even though its operating profit is lower than SamsungElectronics’,” adding, “In contrast, SamsungElectronics has not purchased any of its own shares for cancellation this year.”

The firm rejected the argument that purchasing and canceling preferred shares first violates the principle of equity toward common shareholders. It explained that common and preferred shares are distinct classes of stock under the Commercial Act, and it is difficult to view differing purchase ratios by class as an equity issue.

They also cited instances in the past when SamsungElectronics had increased the proportion of preferred shares purchased. In 2015, when SamsungElectronics repurchased its own shares, preferred shares were trading 22% lower than common shares, so the company allocated approximately 35% of the first-round purchase volume to preferred shares. At the time, SamsungElectronics had announced a policy stating that if the price of preferred shares was more than 10% lower than that of common shares, it would increase the proportion of preferred shares purchased to cancel more shares for the same amount.

Kang Dae-kwon, co-CEO of Life Asset Management, said, “The purpose of our proposal is not to give preferential treatment to preferred shares, but to maximize the buyback and cancellation of treasury stock in a way that SamsungElectronics can realistically implement,” adding, “If both common and preferred shares are bought back and canceled together, we would naturally welcome that.”