Big strategic decisions await Samsung’s Lee as momentum builds for his parole

SEOUL, Aug. 4 (Reuters) – Holding their breath, Samsung Electronics (005930.KS) management is waiting to see whether conglomerate leader Jay Y. Lee will be paroled this month.

Support for his parole, both political and among the public, has grown amid concerns that key strategic decisions are not being made at the South Korean tech giant.

If released, Samsung would be able to move forward with major investment and M&A projects – decisions according to company sources should only be made by Lee, who no was unable to respond while in prison convicted of corruption and embezzlement.

In particular, a decision on the location of a US $ 17 billion factory to produce advanced logic chips is awaiting its return, four Samsung sources told Reuters on condition of anonymity.

“The word is that the US investment will be finalized when Vice President Jay Y. Lee returns,” one of the people said.

Kinam Kim, head of chips and components at Samsung and one of the company’s three co-CEOs, made a rare direct appeal to President Moon Jae-in in June, arguing that Lee’s return was crucial.

“Semiconductors need big investment decisions and decisions can only be made quickly when the head of the conglomerate is present,” Kim said, quoted by Moon’s office.

Lee served one year of an initial 5-year sentence from August 2017, which was later suspended. This court decision was overturned and the sentence was revised to 30 months, putting him back in jail in January of this year. After serving some 18 months, he has just become eligible for release.

Last month, the Justice Department relaxed the parole eligibility criteria for well-behaved first offenders like Lee to 60% of time served. The average length of eligibility for all criminals in South Korea was 80% before the easing.

Lee’s parole is set to be reviewed on August 9, and within Samsung there are high hopes that he will be released around August 15, when the country celebrates Independence Day and pardons are traditionally granted. three of Samsung’s sources said.

The Justice Department and Samsung declined to comment.

On parole, Lee would need the Justice Minister to approve his return to work, as people are prohibited by law from working for companies involved in certain convictions for five years. He is likely to get it, according to legal experts, because the amount deemed embezzled has been refunded.

Although there have been protests against Lee’s early release and civic groups have expressed opposition, public support for his early release is around 70%, according to two polls.

A parliamentary committee leader also expressed support as other ruling party members toured Samsung’s chip complex, noting that Lee is eligible for parole.

Support on social media ranges from those who think he has already paid his dues while others worry that without Lee at the helm, South Korea’s flagship conglomerate will fall behind over its competitors at a time when there is a global shortage of chips and rivals like TSMC (2330. TW) and Intel Corp (INTC.O) are making significant investments.

CASH PILE IS WAITING FOR USE

The largest South Korean conglomerates are still owned and controlled by their founding families, and there is little precedent for handing over the reins to non-family members, even when an elderly family member has been jailed.

On the one hand, Samsung’s day-to-day operations have been little affected by Lee’s jail time. Last quarter operating profit jumped 54% and while jailed in 2017, Samsung reported its second annual profit of 53.6 trillion won ($ 46.6 billion).

But experts say Samsung’s organizational structure makes it difficult for anyone other than Lee to approve strategic decisions that rely on cash pooled by its three main divisions – mobile, consumer electronics and chips.

“In reality, risky strategic decisions like mergers and acquisitions, multi-billion dollar transactions, are left to the owner of Samsung,” said Jaeyong Song, professor at Seoul National University and author of “The Samsung Way”. “, a book on Samsung’s management style.

“CEOs in Korea are more like COOs in a way. They take care of short-term profits, while the owner takes on long-term competitiveness because their tenure is for life.”

Analysts also linked Lee’s legal woes to Samsung’s huge pile of cash, which swelled 57% in four years to just under $ 100 billion at the end of June, noting that it has not made a major acquisition since 2016.

Chief Financial Officer Choi Yoon-ho said at an earnings briefing in January that the increase was mainly due to Samsung’s inability to “execute meaningful merger and acquisition activity.”

In addition to the decision regarding the US chip factory project – which moved to Austin, Texas which is widely regarded as the prime location, another area of ​​Texas, New York, or Arizona – Lee’s return would likely trigger potential corporate stakes, analysts say.

NXP Semiconductors NV (NXPI.O), a Dutch maker of automotive chips with a market value of around $ 58 billion, has often been cited by analysts as a good fit for Samsung’s strategic needs and a likely target. NXP declined to comment.

Samsung SDI (006400.KS) is considering an investment of at least $ 3.5 billion in the United States to produce batteries for electric vehicles, but the final decision will be up to a task force for the wider Samsung group and it is unlikely to be made before the chip factory’s decision, one of the sources said. Read more

($ 1 = 1,151.4,100 won)

Reporting by Joyce Lee and Heekyong Yang; Editing by Jack Kim and Edwina Gibbs

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