(Bloomberg) — Shares of Samsung Electronics Co. soared after South Korea’s largest company announced a surprise plan to buy back about 10 trillion won ($7.2 billion) of its own shares over the next year.
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The stock rose as much as 7.5% in trading in Seoul on Monday, rising 7.2% on Friday prior to the news. Shares are still down about 28% this year on concerns that its memory chip business has fallen behind the artificial intelligence market.
Analysts expect the buyback to be a catalyst for the stock, while some note it could also help the founding family tighten its grip. The shares of competitor SK Hynix Inc. are up about 23% this year thanks to investor enthusiasm for its AI chips.
“The sudden buyback comes as a positive surprise to us, and we believe Samsung management is proactively working to prevent a further decline in its stock price,” JPMorgan Chase & Co. analyst Jay Kwon wrote in a research note. “We believe that the restructuring and strategy/action plan to regain technology leadership will be critical to the share price in the medium to long term.”
In the first phase of the plan announced Friday, Samsung will buy back about 3 trillion won of shares through February 2025, all of which it will cancel. The board will discuss how best to use the remaining 7 trillion won.
Sanghyun Park of Clepsydra Capital notes that the buyback will help the founding family strengthen its control over the company by reducing the number of outside shares. He also notes that it can help them with collateral issues.
Family members have pledged shares in the group company as collateral for the inheritance tax on their property, which they pay in installments. Some of the family has also pledged shares to borrow money from financial institutions, loans that come with the risk of margin calls if the shares fall below a certain level.
“Local agencies have been abuzz since last week about Samsung’s possible near-term price hikes to meet the family’s collateral pressure,” Park wrote in a note on Smartkarma. “The stock is likely to camp comfortably above the 53,000 won danger zone for a while.”
Samsung is also still struggling to acquire Taiwan Semiconductor Manufacturing Co. to catch up in outsourced chip manufacturing, and to fend off stiff competition in the sluggish markets for smartphones and other consumer electronics. While it recently said it has made “meaningful” progress in AI memory chips, some observers believe management changes will happen soon.
