Samsung Wrestles with Death, Taxes and Dividends -- Heard on the Street

By Jacky Wong

Samsung Chairman Lee Kun-hee left behind a world-class technology giant when he died Sunday. His family, however, may need to deal with something more mundane: a record tax bill.

Inheritance tax for the Lee family could amount to the equivalent of $9.3 billion, according to Citi. That doesn't include Mr. Lee's unlisted assets, so the figure could be even higher. The final amount will also depend on share-price movements of his holdings in the next two months.

Mr. Lee transformed a small Korean electronics company into a world-beating manufacturer of smartphones, memory chips and televisions during his more than three decades at the helm. His death, however, shouldn't disrupt the daily operations of the Samsung group of companies, as he had been hospitalized since a heart attack in 2014.

Samsung Electronics reported another stellar quarter Thursday: Operating profit for the three months ending in September rose 49% from a year earlier to the highest since 2018, fueled by strong demand for memory chips and smartphones.

Consistently great performance will help the Lee family pay the tax bills, which can be paid in installments over five years. Sales of some noncore assets are also possible, but large-scale disposals are unlikely as that could loosen the family's control over the group.

The more likely scenario is an increased dividend payout, especially from the group's crown jewel, Samsung Electronics. Samsung Electronics sat on $87 billion in net cash as of September. The company is also due to announce its shareholder return policy for the next three years.

Increased dividends from Samsung Electronics co uld benefit group companies higher in the holding structure, where the Lee family owns a bigger direct stake. The Lee family and other group companies own around 20% of the $340 billion Samsung Electronics. Most of that stake is controlled through two other group companies, Samsung C&T and Samsung Life. The Lee family owns 32% of Samsung C&T, the de facto holding company of the group, and 21% of the latter. Samsung C&T also owns 19% of Samsung Life.

That is why shares of those two companies moved higher after the news of Mr. Lee's death. Samsung C&T jumped 13% Monday before giving up some of those gains in the recent market selloff. Samsung Life gained 3.8% Monday.

Investors will be wise to follow the cash: Even companies as powerful as Samsung, and their leaders, can't escape death and taxes.

Write to Jacky Wong at JACKY.WONG@wsj.com

(END) Dow Jones Newswires

October 29, 2020 04:32 ET (08:32 GMT)

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