During his long and controversial career, Samsung Electronics Co. Chairman Lee Kun Hee has transformed his family’s dried-fish and produce company into the world’s biggest maker of TVs and mobile phones, challenging Apple Inc. and Sony Corp. in the process. Now he must contend with feuding siblings.
Billionaire Lee, 70 years old and South Korea’s wealthiest citizen, is facing down lawsuits that his older brother and sister are waging in an attempt to win a slice of the family wealth. Lee Byung Chul founded what is today South Korea’s biggest business group in 1938 and died in 1987 without leaving a will, casting a shadow over the giant company’s otherwise promising future.
The siblings’ demand for at least an $850 million stake in the group that generates about 20 per cent of South Korea’s gross domestic product threatens to be a costly distraction at a time of intense industry competition. The civil trial starts today.
“He has grown Samsung to the point where Korea is called ‘Republic of Samsung,'” said Park Hyun Goon, author of “Lee Kun Hee’s Agony,” a book about Samsung succession published this year. “How would it make him feel if a share of that is taken away by his siblings or if his company goes down?”
Samsung vs. Apple
The rancor comes as Samsung Electronics challenges Cupertino, California-based Apple, its biggest customer and its adversary in patent lawsuits on four continents, after selling one of almost every four mobile phones in the first quarter. Samsung earned 7.64 per cent of its revenue from selling chips, displays and other products to the iPhone maker.
At the same time, more than 30 cases concerning patents and design are pending from Paris to San Francisco between the two companies, which traded leadership positions in the $219 billion global smartphone market in the past three quarters.
Samsung ended Espoo, Finland-based Nokia’s 14-year run as the global leader in mobile phones last quarter. Samsung shipped 93.5 million handsets of all kinds, compared with 82.7 million for Nokia, researcher Strategy Analytics said last month. Apple ranked third.
“The risk of losing your edge during these times is real,” Matt Walker, senior analyst at market researcher Ovum, said in an e-mail. “Companies that are driven by innovation, as Samsung should be, can’t afford much downtime to deal with this kind of turbulence.”
The family feud drags Lee, a lung cancer survivor, back into a courtroom following a series of earlier run-ins with the law. He was convicted of paying bribes to former Presidents Chun Doo Hwan and Roh Tae Woo in 1996 before receiving a pardon from then-President Kim Young Sam a year later.
Lee quit as chairman of the group and electronics company in 2008 after being charged with tax evasion. He received another presidential pardon in 2009 and reassumed his post running Samsung Electronics in 2010.
“Ironically, the biggest risk to Samsung’s corporate governance is Lee Kun Hee himself,” said Chae Yi Bai, a researcher at the centre for Good Corporate Governance, a Seoul- based private institute monitoring South Korean conglomerates. “The family dispute again highlights this inherent problem of Samsung.”
‘Not One Dime’
The feud became public in February when brother Lee Maeng Hee, 80, and sister Lee Sook Hee, 76, filed suits at the Seoul Central District Court demanding shares held in Samsung Life Insurance Co. by their younger sibling. Samsung Life is the second-largest shareholder of Samsung Electronics after the company itself, so whoever controls the insurance company controls Asia’s biggest consumer-electronics maker.
Lee Maeng Hee issued a statement to local media through his law firm last month, saying, “Lee Kun Hee’s greed has caused the suit.” Their sister told TV Chosun in February that she joined the lawsuit because Samsung mistreated Lee Maeng Hee. Neither litigant has any role in the group.
Chairman Lee said he wouldn’t give a “dime” to his brother because inheritance matters had been settled by his father, according to media reports on April 17. He later apologized for publicly making the comments and said he would instead focus on running the company.
Chairman Lee holds 41.5 million shares, or about 21 per cent, of Samsung Life, making him the largest shareholder, according to data compiled by Bloomberg. The elder brother wants 8.24 million of those shares and the sister wants 2.23 million shares, according to Yoon & Yang, the Seoul law firm representing them, valued at a combined $850 million.
The public holdings of South Korea’s richest man are valued at $8.6 billion, according to data compiled by Bloomberg. The family conglomerate, Samsung Group, controls more than 80 companies making armoured vehicles and artillery guns for South Korea’s military, oil tankers, amusement parks and apartment complexes. Handing over the 10.47 million shares to his siblings would mean the chairman no longer would be the largest investor in Samsung Life.
In South Korea’s complex world of cross-holding of shares in companies, that could trigger a dispute over control of Samsung Electronics, Chae said.
“This could be a big problem for their overall governance,” he said.
To avoid a battle about the complex shareholding structure, Lee may opt to pay his siblings in cash or with other assets, Chae said.
Until now, the stock market hasn’t shown any concerns. Samsung shares have advanced 15 per cent this year and reached a record high 1.41 million won this month. The shares have jumped more than 100-fold since Lee became chairman in 1987.
Samsung Electronics accounted for 44 per cent of Samsung Group’s total revenue in 2011.
Chairman Lee hasn’t hinted of letting the family discord disrupt the business, telling local media on May 2 that he “won’t be involved in the issues related to the suits from now on and I will only focus on growing Samsung Group.”
“All these chaebol families try to maintain as much privacy as possible,” said Tom Coyner, Seoul-based president at Soft Landing Consulting, a business-advisory firm.
“Chaebol” is the Korean word for a family-controlled conglomerate, including Samsung and Hyundai Group.
“It’s remarkable that so much name-calling has been made in public. It shows that there’s a great amount of tension in the family.”
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