Samsung to sell defence business, speed up restructuring drive

Samsung Group is to sell its defence and military affiliates for almost $2 billion to compatriot Hanwha, a financial and defence conglomerate, as part of its group-wide restructuring plan to streamline businesses, reports ZDNet Korea.
Written by Cho Mu-Hyun, Contributing Writer

Samsung Techwin, Samsung General Chemicals, Samsung Total, and Samsung Thales will be handed over to Hanwha affiliates for 1.9 trillion won ($1.7 billion). The related and required approval processes will be commenced from January to February next year, and the deal will be finished within the first half of next year, the group said in a statement.

This is the first time since the 1997 Asian financial crisis, in which it sold its entire automobile business, that Samsung is selling off an entire business in the scales of billions of dollars.

Samsung Group, South Korea's largest conglomerate, has been rapidly merging its various affiliates this year to ease control over them and streamline its key businesses — electronics, finance, and construction — for better focus.

Samsung Electronics, Samsung C&T, Samsung Securities, and other affiliates will sell their 32.4 percent share of Samsung Techwin for 840 billion won ($758 million) to Hanwha Holdings. Samsung C&T, Samsung SDI, and Samsung Electro-Mechanics are to sell their 57.6 percent share of Samsung General Chemicals to Hanwha Chemical and Hanwha Energy for 1.6 trillion won ($1.44 billion).

Samsung C&T, the current major shareholder of Samsung General Chemical, with 38.4 percent shares, will retain 18.5 percent of its share to collaborate with Hanwha in chemical businesses.

According to executives of component suppliers to Samsung's defence and chemical businesses, Samsung's top brass has been mulling how to get rid of them, as they didn't have much synergy with its key businesses, such as Samsung Electronics, and were underperforming.

A senior Samsung executive, who declined to be named, told ZDNet Korea: "We must throw away unnecessary businesses and focus on our key growth areas, such as electronics."

Samsung Techwin manufactures CCTV, chip-making equipments, and self-propelled artilleries. Samsung Thales, a joint venture with France's Thales International, makes military radars and ships' battle command systems. Samsung General Chemicals produces purified terephthalic acid (PTA) that is used to create polyester. Samsung Total, a joint venture with France's Total Group, makes ethylene.

"Our initial and primary interest was to acquire Samsung’s chemical firms. But we asked that Samsung throw in other businesses as well for the deal to go through, preferably its defense businesses because those are also our key business area and they have synergy with chemicals," a top-level Hanwha executive directly involved in the deal, who requested anonymity as the executive was not authorized to speak to the media, told ZDNet Korea.

Samsung Techwin's aerospace division was overseeing projects that were worth billions of dollars that many saw had strong changes of contributing to Samsung's technology advancment, and will now likely be managed by Hanwha.

Earlier, Samsung merged its electronics component arm Samsung SDI with Cheil Industries' industrial material division. It merged Cheil Industries' remaining fashion business with Samsung Everland, its de facto holding company that runs real estate businesses and an amusement park, and renamed Cheil Industries. Samsung Techwin spun out its semiconductor equipment division.

The conglomerate also attempted to merge its construction affiliates Samsung Heavy Industries and Samsung Engineering, its shipbuilder and plant maker, respectively, which fell out due to shareholders' opposition, but it will likely try again.

Local analysts also believe that Samsung will change its current cross-shareholding structure into a holding company structure to better control its wide array of affiliates. Currently, despite all the affiliates being branded "Samsung", Samsung has no eponymous holding company that owns shares of all of the companies. The entire group is controlled by the Future Strategy Office, the de facto chairman's office and control tower of the conglomerate, which is not a legal entity, but which exercises control by being the chairman's representative.

Source: ZDNet Korea (zdnet.co.kr)

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