(Bloomberg) — Shares of Samsung Electronics Co. jumped after South Korea’s largest company announced a surprise plan to buy back about 10 trillion won ($7.2 billion) of its own shares at the price. of next year.
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The stock rose 7.5% Monday in Seoul, adding to a 7.2% jump Friday before the news was announced. Shares are still down about 28% this year on concerns that its memory chip business is lagging in the artificial intelligence market.
Analysts expect the buyout to be a catalyst for the stock, while some have noted it could also help the founding family tighten its grip. Shares of rival SK Hynix Inc. have soared about 23% this year on investor enthusiasm for its AI chips.
“This sudden buyback is a positive surprise to us and we believe that Samsung management is proactively seeking to prevent a further decline in the stock price,” Jay Kwon, an analyst at JPMorgan Chase & Co., wrote in a research note. “We believe that the restructuring and strategic/action plan to regain technological leadership will be more critical for the stock price in the medium to long term.”
In the first phase of the plan announced Friday, Samsung will repurchase around 3 trillion won of shares until February 2025, which it will cancel in full. The board will deliberate on how best to deploy the remaining 7 trillion won.
Sanghyun Park of Clepsydra Capital, notes that the buyout will help the founding family strengthen its control over the company by reducing externally held shares. He also notes that this could help them resolve warranty issues.
Family members have pledged shares in group companies as security for inheritance tax on their assets, which they pay in installments. Some family members also pledged shares to borrow money from financial institutions, loans that carry risks of margin calls when stocks fall below certain levels.
“Local offices have been abuzz since last week about Samsung potentially raising prices in the short term to deal with pressure from family guarantees,” Park wrote in a note on Smartkarma. “The stock will likely camp comfortably above the 53,000 won margin call danger zone for some time.”
Samsung is also struggling to catch up with Taiwan Semiconductor Manufacturing Co. in outsourced chipmaking, as well as withstand stiff competition in sluggish markets for smartphones and other consumer electronics. Although it recently said it had made “significant” progress in AI memory chips, some observers believe changes in direction are coming.