South Korea orders Samsung Group to weaken or break three shareholding chains

Samsung Group must weaken or break three of its circular shareholding chains which were strengthened by the merger of two affiliates, South Korea's Fair Trade Commission said on Sunday.

The ruling stems from Samsung SDI Co Ltd's stake in Samsung C&T Corp, which was formerly known as Cheil Industries Inc before it took the name of a sister construction firm it merged with in September. SDI held stakes in both firms, so it got additional shares in the merged entity through the all-stock deal.

South Korean laws currently prohibit the country's top conglomerates from forming new circular shareholding chains or strengthening their existing circular shareholding chains. Acquiring additional shares in any part of the existing chains, which SDI did in the three chains as a result of the merger, is a violation.

The commission said Samsung Group had until March 1 next year to either have Samsung SDI sell a 2.6 percent stake in Samsung C&T, worth 727.5 billion won ($623.18 million) based on Thursday's closing price, or break the three chains completely. The chains can be broken if SDI sells its entire 4.7 percent stake in Samsung C&T.

The ruling will not affect the founder Lee family's hold over the electronics-to-fashion conglomerate. De facto leader Jay Y. Lee and his family members collectively hold a 30.2 percent stake in the firm, considered the key vehicle through which they control top affiliates such as Samsung Electronics Co Ltd and Samsung Life Insurance Co Ltd.

Samsung C&T has said its shareholders will act as needed to comply with the regulations.