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Samsung Set To Be Upended As Lee Family Restructure

A controversial web of Companies that benefit the Lee family and are wrapped around Samsung are set to be untangled in a move that minority shareholders are applauding.

According to the Wall Street Journal two Samsung affiliates intend to sell off their roughly $1 billion stake in the conglomerate’s de facto holding company, Samsung C&T Corporation.

The moves will have to be approved the boards of Samsung Electro-Mechanics Corporation and Samsung Fire & Marine Insurance, Companies that benefit the Lee Family.

Lee Jae-yong, Samsung Group heir, leaves after his verdict trial at the Seoul Central District Court in Seoul, South Korea August 25, 2017. Lee was handed down 5 years jail sentence while prosecutors sought a 12-year in prison. REUTERS /Lee Jae-yong/Pool – RTS1D8W1

The move is tipped to benefit Lee Jae-yong, the 49-year-old Samsung Electronics vice chairman and grandson of the conglomerate’s founder, who recently did time in prison following a corruption probe.

Since leaving prison, Mr. Lee has kept a low profile. He hasn’t attended a Samsung Electronics board meeting since his release, and the full board has yet to be briefed on what his ultimate role will be, according to people familiar with the situation.

His father, Lee Kun-hee, the chairman of Samsung, has been incapacitated since suffering a stroke in 2014, and when he dies, a multibillion-dollar inheritance tax of at least 50% will have to be paid to Korean authorities.

The most likely scenario, is that Lee Jae-yong will pay his tax bill by selling his father’s sizable stakes in key Samsung affiliates.

Doing so would leave the younger Mr. Lee—a billionaire whose own wealth is largely held in shares of Samsung affiliates—with far less control over the business empire than his father enjoyed when leading the conglomerate.

Mr. Lee currently owns 0.65% of Samsung Electronics, while his father ranks as the company’s fifth-largest shareholder with a 3.86% stake worth roughly $12 billion. The elder Mr. Lee is the wealthiest South Korean, with an estimated net worth of roughly $20 billion.

The younger Mr. Lee, Harvard-educated and trilingual, has tried to overhaul Samsung’s opaque culture.

He has viewed South Korea’s family-run system as being too sprawling, conservative and corrupt, telling those around him that “the chaebol system is done,” according to people familiar with his thinking.

Mr. Lee is not without his own share of legal problems. He was convicted and jailed last year for offering bribes to a close friend of the former president of South Korea in exchange for government backing of a merger of two Samsung affiliates.

He has denied wrongdoing and was released from prison in February on a suspended sentence. His case is set to be heard by South Korea’s Supreme Court, though no trial date has been set.

Currently he is unable to travel to several Countries because of the conviction.

The move will upend Samsung’s circular shareholdings, an opaque ownership structure that has come under fire from foreign investors and South Korean regulators.

Samsung has been gradually reducing the cross shareholdings since 2013, when there were about 80 such significant arrangements, which gave the Lee family wide leverage to indirectly exert power across the whole conglomerate.

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