The big wheel

Samsung IPO offers ringside seat for restructuring

Samsung is offering the ultimate ringside seat for its big restructuring. As the South Korean conglomerate reshuffles assets ahead of a transfer of power within the controlling Lee family, the initial public offering (IPO) of its de facto holding company is drawing interest. Cheil Industries is an odd mishmash of assets. Yet for investors, the $1.4-billion IPO is a way to get up close and personal with the group's heir apparent.

Patriarch Lee Kun-hee's ill health has triggered a flurry of activity within Samsung's 70-plus companies. These include the disposal of stakes in defence firm Samsung Techwin and three other units for $1.7 billion, announced on November 26. The top objectives are funding the $6-billion tax bill Lee's children could face if they inherit their father's shareholdings, and tightening the family's grip on key assets. Cheil, formerly called Samsung Everland, is one of the few companies in which the children own a sizeable direct interest.

The IPO values Cheil at $5.5 billion at the top end of the price range. That doesn't factor in the potential value of making better use of the group's land bank. After the listing, Lee's children - including heir apparent Jay Y Lee - will own 45.1 per cent of Cheil and control the business through stakes held by Samsung affiliates.

Cheil's appeal to outside investors is far from obvious. The mini-conglomerate has an unattractive mix of businesses from fashion and food to theme parks. However, it also offers exposure to the conglomerate's crown jewels. Cheil's 19.3-per cent stake in Samsung Life Insurance accounts for at least three-quarters of the company's post-IPO value. Samsung Life in turn owns 7.6 per cent of Samsung Electronics.

Investors can already buy into these listed companies. But they are betting the family will do whatever it can to boost the value of Cheil, for example by acquiring other Samsung businesses on favourable terms. CLSA says targets could include builder Samsung C&T, which owns a further four-per cent stake in Samsung Electronics. Shares in IT services group Samsung SDS have soared to a sky-high 58 times forecast earnings following their debut this month because investors expect the family will seek to boost the value of its shareholding ahead of a potential exit. Cheil is even more important.