(Bloomberg) — Shares of Samsung Electronics soared after the South Korean giant announced a surprise plan to buy back about 10 trillion won ($7.2 billion) of its own stock over the next year.
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Shares rose as much as 7.5% in Seoul trading on Monday, adding to Friday’s 7.2% rise on the news. The company’s stock is still down about 28% this year on concerns that its memory chip business is lagging in the artificial intelligence market.
Analysts expect share buybacks to help boost stock prices, but others say they could also strengthen the control of the company’s founding family. Shares in rival SK Hynix have risen about 23% this year on investor enthusiasm for the company’s AI chips.
“The sudden share buyback was a positive surprise for us, and we believe that Samsung’s management is actively aiming to prevent further stock price declines,” JPMorgan Chase analyst Jay Kwon said in a research note. ” “We believe the company’s reorganization and strategy and action plan to regain its technology leadership will be more important to the stock price in the medium to long term.”
In the first phase of the plan announced on Friday, Samsung will buy back about 3 trillion won of shares until February 2025, all of which will be retired. The board will consider how best to use the remaining 7 trillion won.
Sang-hyun Park of Clepsydra Capital points out that stock buybacks will help the founding family strengthen control over the company by reducing outside holdings. He also points out that it could help solve ancillary problems.
The family pledges the shares of the group company as security for inheritance tax on their holdings, and pays the tax in installments. Some families use stocks as collateral to borrow money from financial institutions, but those loans come with the risk of margin calls if stock prices fall below a certain level.
“Local desks have been buzzing since last week about Samsung potentially raising prices in the short term to address the family collateral shortage,” Park wrote in a note on Smart Karma. “The stock price will probably comfortably exceed the margin call danger zone of 53,000 won for some time.”
Samsung also still struggles to catch up with Taiwan Semiconductor Manufacturing Co. in outsourced chip manufacturing and fend off stiff competition in the sluggish market for smartphones and other consumer electronics. The company recently announced that it had made “meaningful” progress with its AI memory chips, but some observers believe a change in management is coming soon.
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