Shares of Samsung Electronics Co. surged by as much as 7.5% in Seoul trading on Monday after the company announced a surprising buyback plan valued at 10 trillion won ($7.2 billion) over the next year.
This rise built on the 7.2% gain observed on Friday ahead of the announcement.
Despite these recent gains, the shares are still down approximately 28% this year, a decline fuelled by concerns over Samsung’s competitive position in the AI-focused memory chip market, where it has struggled to keep up with key players.
Buyback plan to support stock and strengthen family control
Analysts view the substantial buyback as a strategic move likely to bolster the stock and provide immediate relief to investors, Bloomberg said.
“The sudden buyback comes as a positive surprise to us, and we believe Samsung’s management is proactively aiming to prevent further share price decline,” said JPMorgan Chase & Co. analyst Jay Kwon.
The buyback is also expected to have implications for Samsung’s founding Lee family, allowing them to tighten their grip on the company by reducing the number of shares held by external investors.
Sanghyun Park of Clepsydra Capital emphasized that this move could assist the Lee family in handling collateral requirements linked to their substantial inheritance tax obligations.
The family has been paying this tax in installments, using group company shares as collateral.
Some family members have also pledged stock for loans from financial institutions, which carries the risk of margin calls if the stock price dips below critical levels.
Immediate and long-term market effects
The first phase of the buyback plan, which will last until February 2025, involves purchasing and canceling shares worth about 3 trillion won.
Samsung’s board will deliberate on the most effective strategy for deploying the remaining 7 trillion won in the months that follow.
Park noted, “Local desks have been buzzing since last week about Samsung potentially pulling a short-term price pop to deal with the family’s collateral squeeze.
The stock’s probably gonna camp comfortably above the 53,000 won margin call danger zone for a while.”
Competing in the AI chip market and future strategies
The announcement comes at a time when Samsung’s chip division is facing fierce competition, particularly from Taiwan Semiconductor Manufacturing Co. (TSMC) and others that have captured a leading position in AI chip production.
While Samsung has stated it has made “meaningful” progress in AI memory chips, analysts believe more significant changes may be necessary.
Citigroup Inc. analyst Peter Lee remarked, “We anticipate the possibility of a management reshuffle in late November, with potential for significant changes in chip operations. T
These moves, along with the buyback, should be well-received by the market.”
Part of a wider regulatory push
The buyback plan also aligns with broader efforts by South Korea’s government and market regulators to enhance the valuation of domestic stocks.
In prior years, Samsung engaged in major repurchase programs, including 9.3 trillion won in 2017 and 11.3 trillion won in 2015, demonstrating its ongoing commitment to shareholder value even amid challenging market conditions.
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