Bloomberg News

Billionaire Lee Fights Back Relatives Over Samsung Shares

May 30, 2012

During his long and controversial career, Samsung Electronics Co. (005930) Chairman Lee Kun Hee has transformed his family’s dried-fish and produce company into the world’s biggest maker of TVs and mobile phones, challenging Apple Inc. (AAPL:US) and Sony Corp. (6758) in the process. Now he must contend with feuding siblings.

Billionaire Lee, 70 years old and South Korea’s wealthiest citizen, is facing down lawsuits that his older brother and sister are waging in an attempt to win a slice of the family wealth. Lee Byung Chul founded what is today South Korea’s biggest business group in 1938 and died in 1987 without leaving a will, casting a shadow over the $153 billion electronics company’s future.

The siblings’ demand for at least an $850 million stake in the group that generates about 20 percent of South Korea’s gross domestic product threatens to be a costly distraction at a time of intense industry competition. The civil trial started today.

“He has grown Samsung to the point where Korea is called ‘Republic of Samsung,’” said Park Hyun Goon, author of “Lee Kun Hee’s Agony,” a book about Samsung succession published this year. “How would it make him feel if a share of that is taken away by his siblings or if his company goes down?”

Samsung vs. Apple

The rancor comes as Samsung Electronics challenges Cupertino, California-based Apple, its biggest customer and its adversary in patent lawsuits on four continents, after selling one of almost every four mobile phones in the first quarter. Samsung earned 7.64 percent of its revenue from selling chips, displays and other products to the iPhone maker.

At the same time, more than 30 cases concerning patents and design are pending from Paris to San Francisco between the two companies, which traded leadership positions in the $219 billion global smartphone market in the past three quarters.

Samsung ended Espoo, Finland-based Nokia Oyj (NOK1V)’s 14-year run as the global leader in mobile phones last quarter. Samsung shipped 93.5 million handsets of all kinds, compared with 82.7 million for Nokia, researcher Strategy Analytics said last month. Apple ranked third.

“The risk of losing your edge during these times is real,” Matt Walker, senior analyst at market researcher Ovum, said in an e-mail. “Companies that are driven by innovation, as Samsung should be, can’t afford much downtime to deal with this kind of turbulence.”

Family Feud

The family feud drags Lee, a lung cancer survivor, back into a courtroom following a series of run-ins with the law. He was convicted of paying bribes to former Presidents Chun Doo Hwan and Roh Tae Woo in 1996 before receiving a pardon from then-President Kim Young Sam a year later.

Lee quit as chairman of the group and electronics company in 2008 after being charged with tax evasion. He received another presidential pardon in 2009 and reassumed his post running Samsung Electronics in 2010.

“Ironically, the biggest risk to Samsung’s corporate governance is Lee Kun Hee himself,” said Chae Yi Bai, a researcher at the Center for Good Corporate Governance, a Seoul- based private institute monitoring South Korean conglomerates. “The family dispute again highlights this inherent problem of Samsung.”

The feud became public in February when brother Lee Maeng Hee, 80, and sister Lee Sook Hee, 76, filed suits at the Seoul Central District Court demanding shares held in Samsung Life Insurance Co. (032830) by their younger sibling. Samsung Life is the second-largest shareholder of Samsung Electronics after the company itself, so whoever controls the insurance company controls Asia’s biggest consumer-electronics maker.

Not A ‘Dime’

Neither the brother nor sister has any role in the group. At today’s hearing in Seoul, their lawyer said the siblings were trying to regain wealth “they unfairly lost.”

“They aren’t unethical people who are only after money,” Kim Nam Geun said.

The chairman’s lawyer said the family patriarch repeatedly expressed his desire for Lee Kun Hee to take over the group.

“If not, how could there have been no dispute over the last 25 years?” Kang Yong Hyeon said. “It doesn’t make sense.”

The Lees didn’t attend. The next hearing is June 27.

Chairman Lee said he wouldn’t give a “dime” to his brother because inheritance matters had been settled by his father, according to media reports on April 17. He later apologized for publicly making the comments.

Richest Man

Chairman Lee holds 41.5 million shares, or about 21 percent, of Samsung Life, making him the largest shareholder, according to data compiled by Bloomberg. The elder brother wants 8.24 million of those shares and the sister wants 2.23 million shares, according to Yoon & Yang, the Seoul law firm representing them, valued at a combined $850 million.

The public holdings of South Korea’s richest man are valued at $8.6 billion, according to data compiled by Bloomberg. The family conglomerate, Samsung Group, controls more than 80 companies making armored vehicles and artillery guns for South Korea’s military, oil tankers, amusement parks and apartment complexes.

Handing over the 10.47 million shares to his siblings would mean the chairman no longer would be the largest investor in Samsung Life. In South Korea’s complex world of cross-holding of shares in companies, that could trigger a dispute over control of Samsung Electronics, Chae said.

“This could be a big problem for their overall governance,” he said.

‘So Much Name-Calling’

To avoid the battle, the chairman may opt to pay his siblings in cash or with other assets, Chae said.

Until now, the stock market hasn’t shown any concern. Samsung shares have advanced 16 percent this year and reached a record high 1.41 million won earlier this month. The shares have jumped more than 100-fold since Lee became chairman in 1987.

Samsung Electronics accounted for 44 percent of Samsung Group’s total revenue in 2011.

Chairman Lee hasn’t hinted of letting the family discord disrupt the business, telling local media May 2 he “won’t be involved in the issues related to the suits from now on and I will only focus on growing Samsung Group.”

“All these chaebol families try to maintain as much privacy as possible,” said Tom Coyner, Seoul-based president at Soft Landing Consulting, a business-advisory firm.

“Chaebol” is the Korean word for family-controlled conglomerate, such as Samsung and Hyundai Group.

“It’s remarkable that so much name-calling has been made in public,” Coyner said. “It shows that there’s a great amount of tension in the family.”

To contact the reporter on this story: Jun Yang in Seoul at jyang180@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net


Too Cool for Crisis Management
LIMITED-TIME OFFER SUBSCRIBE NOW

Companies Mentioned

  • AAPL
    (Apple Inc)
    • $105.22 USD
    • 0.39
    • 0.37%
Market data is delayed at least 15 minutes.
 
blog comments powered by Disqus