Palliser Pushes Samsung to Buy Back Discounted Preferred Shares

Palliser Capital is urging Samsung Electronics to buy back discounted preferred shares to boost shareholder value. (Yonhap) More than 86 trillion won, or approximately $64.24 billion, in value is tied up in South Korea’s deeply discounted preferred shares, according to an analysis cited by UK-based activist fund Palliser Capital. The fund has urged Samsung Electronics and Hyundai Motor to prioritize buying back and retiring their undervalued preferred shares to enhance shareholder value. James Smith, Palliser’s chief investment officer, highlighted the structural undervaluation of Korean preferred shares at the Sohn Investment Conference in San Francisco on Oct. 13, local time. According to Palliser’s analysis, the average discount on the 30 largest preferred-share classes listed in South Korea by market capitalization stands at 46%, far exceeding the roughly 5% discount seen in major developed markets. Palliser has proposed three key measures for Samsung Electronics. It wants the company to prioritize preferred-share buybacks when allocating the remaining funds earmarked for shareholder returns this year and to set an explicit target of narrowing the preferred-share discount to around 10% in its 2027–2029 shareholder-return plan. The fund has also recommended that Samsung consider issuing American depositary receipts (ADRs) in the United States at a premium and using the proceeds to buy back and retire cheaper preferred shares listed in South Korea. Samsung Electronics’ preferred shares currently trade at a discount of about 26% to its common shares. Palliser argues that buying back preferred shares at a discount can be an efficient use of capital because the shares carry the same economic rights as common shares, apart from voting rights. Retiring the discounted shares would allow Samsung to eliminate more shares for the same amount of money, potentially increasing per-share value and benefiting common shareholders as well. Hyundai Motor is also a target of Palliser’s campaign. The company’s three classes of preferred shares trade at an average discount of about 48% to its common shares. Palliser has urged Hyundai Motor to allocate most of its planned share buybacks, totaling up to 4 trillion won for 2025–2027, to preferred shares. It has also called on the automaker to include a specific target for narrowing the discount in its corporate value enhancement plan and to establish an independent special committee to protect preferred shareholders in the event of a corporate governance restructuring. South Korean asset managers are also pressing Samsung Electronics to expand its preferred-share buybacks and cancellations. Life Asset Management and Petra Asset Management have recently sent shareholder letters to the company making that case. Life Asset Management, in particular, has argued that restrictions under the Act on the Structural Improvement of the Financial Industry complicate the cancellation of common shares because of stakes held by Samsung Life Insurance and Samsung Fire & Marine Insurance. It says retiring preferred shares, which it views as less constrained by those restrictions, offers a practical alternative. Samsung Electronics has maintained a general position that it is considering ways to narrow the discount on its preferred shares. In 2015, the company allocated 35% of its share-buyback budget to preferred shares as part of an effort to reduce the discount. At the time, Samsung said that retiring more shares with the same amount of money would benefit all shareholders. However, directing a larger share of buyback funds toward preferred shares could raise questions of fairness among common shareholders, creating a challenge for the board. Some industry observers interpret Palliser’s focus on non-voting preferred shares as an attempt to increase pressure for shareholder returns without directly challenging the controlling shareholder’s voting power. Others have expressed concern that activist funds are stepping up pressure to secure returns amid uncertainty over the semiconductor industry’s outlook.