Professional Documents
Culture Documents
The advantages and disadvantages of the Chaebols are those of every conglomerate.
Advantages: Chaebols raised considerable investment tools.
A chance for developing countries to organize the whole economy and build the very first foundation of the exchanges structure
An extraordinary way to avoid loss of energy that would have caused an unnecessary competition
The opportunity to educate the firms until they are strong and competitive enough to successfully undergo the adversity of a free
market
Gives to the State a unique partner with which it will organize the development of the country around a consistent policy
Disadvantages: the main problem of the Chaebols model is that it kept its strategy consisting in growing in size at any cost
The lack of risk due to the mutual assistance (through the agreements between the firms) and the support of the State led the
Chaebols top managers to take unconsidered investment decisions
Too much involvement into unprofitable businesses
Their leverage ratio rose dangerously and their debt, mainly held by foreign investors, made them vulnerable to a sudden change in
interests rates
The governance issue of the Chaebol was born among the inextricable links of the companies that
resulted from cross-holding investments
The establishment at the head of the firms tended to promote transactions that were not profitable to
their company but to their peers or members of family
High difficulty to prove the illegality of leaders decisions that were suspected to be taken
accordingly to their own interests only
How can one prove that a board decision is destined to make richer a third?
What tells the difference between wrong decisions and corruption?
Q2: Analyze
the capital
structure
of Samsung
Electronics.
Compare
it withitthe
structure
of a company
in the
Q2: Analyze
the capital
structure
of Samsung
Electronics.
Compare
withcapital
the capital
structure
of a
companysimilar
in theline
similar
line of business
from another
developed
and comment
on the
of business
from another
developed
country country
and comment
on the differences
differences
In order to analyze the capital structure of Samsung Electronics, we extracted some figures from 1997s consolidated balance sheet, and
compared them with Texas Instrument, American leader in the chip manufacturing business.
Samsung
Electronics
Texas Instrument
Total Assets
26,541,367
10,849,000
Total Liabilities
22,785,043
4,935,000
(In K US $)
5,914,000
D/E Ratio
607%
83%
Debt Ratio
86%
45%
Q3.If Samsung Motors makes an after tax profit of $100 million, what share of that profit would go to the Lee family?
Q3.If Samsung Motors makes an after tax profit of $100 million, what share of that profit would go to
What percentage of the firm do they directly own?
the Lee family? What percentage of the firm do they directly own?
Samsung Motors
$100 million earnings
$40 million dividends*
*In the early 90s, payout ratio was around 40% (S&P 500)
21.11%
Samsung
Electronics
$8.44 million earnings
$3.38 million dividends*
7.45%
Samsung Display
Devices
$2.98 million earnings
$1.19 million dividends*
2.48%
Samsung Heavy
Inustries
$0.99 million earnings
0.4 million dividends*
6.08%
1.24%
Samsung Electro
Mechanics
$2.43 million earnings
$0.97 million dividends*
Samsung
Everland
$0.5 million earnings
$0.2 million dividends*
5.41%
67.30%
Lee family
$183,000
Lee family
$135,000
Q3.If Samsung Motors makes an after tax profit of $100 million, what share of that profit would go to the Lee family?
What percentage of the firm do they directly own?
To determine in what extent the Lee family controls the affiliates owners of Samsung Motors, we have to use the decomposition of their
capital in terms of affiliates directly controlled by the Lee family. (In facts, thanks to cross-ownership, the control level should be higher
than what we will find, but the high level of dilution makes the additional control very limited).
Firms
/
aliates
owners
(%
of
Lee
family
control)
Samsung
Electronics
(5.41%)
Samsung Electronics
Samsung
Co
(2.32%)
4.45%
10.87%
5.39%
18.92%
4.92%
Samsung Electro-mechanics
21.92%
5.59%
1.89%
The
Joong-
Ang
Daily
news
(41.80%)
8.16%
Samsung Everland
Samsun
Life
Ins.
(15%)
17.10%
Q3.If Samsung Motors makes an after tax profit of $100 million, what share of that profit would go to the Lee family?
What percentage of the firm do they directly own?
Samsung
Electronics
$8.44 million earnings
$3.38 million dividends*
Samsung Display
Devices
$2.98 million earnings
$1.19 million dividends*
1.33%
1.38%
Lee family
$45,000
Lee family
$16,400
Samsung Heavy
Inustries
$0.99 million earnings
0.4 million dividends*
1.76%
Lee family
$7,000
Samsung Electro
Mechanics
$2.43 million earnings
$0.97 million dividends*
Samsung
Everland
$0.5 million earnings
$0.2 million dividends*
2.02%
7.19%
Lee family
$19,600
As a result, we find that the Lee family will perceive $420,000 of dividends*.
Finally, the Lee family has claim on 1.05% of the dividends*, whereas they have no direct control on the firm.
*This estimation strongly depends on Samsung motors and of its affiliates payout ratio.
Lee family
$14,000
The previous bonds issue happened in September 1996: Issued on the London Stock Exchange and their price : KRW72,784
per bond
The second bonds issue was in December 1997: their price dropped to KRW49,931 per bond.
The price of a convertible bond is determined partly by the price of the share. The convertible bond consists of an underlying
asset (the stock) plus a premium. In theory, the price of the convertible bond should be much higher the price of the stock.
During the month of the second issue, the price of the stock was quite low (around 35). But the linear price is slightly declining
but still above 50.
Hence, the board could expect the share price to rise again. The natural conclusion would be that the deal was favourable to
the buyers.
The other evidence, harder to find, concern the difficulties Samsung had to find sources of funding.
We could compare Samsung to similar firms: could a firm similar to Samsung managed to successfully issue bonds on the
international market ?
We should also try to demonstrate that Samsung was able to rise money from the domestic financial institutions, again using a
comparison with similar companies
Q6: Does the agreement with the Pan-Pacific Industrial Investment resemble a simple direct investment or something
else?
At first it looked like a simple direct investment according to the Korean laws
But Samsung electronics had guaranteed PP a specific rate of return for a certain redemption period
Not clear investment.
Why was the guarantee clause included in the contract?
Yes, it changed since the company now acted more like a third party
But the agreement didnt have any financial impact for the shareholders.
If you were on the Audit committee of the company what questions would you ask about this transaction?