Samsung (KRX:005930) Moving Swiftly to Sell Stakes to Raise Abundant Levels of Cash

Omar Sohail
Posted Sep 19, 2016
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The massive smartphone recall of Galaxy Note 7 has estimated to cost Samsung (KRX: 005930) more than $1 billion in revenue, so the firm is looking for other avenues to raise cash. On Sunday, Samsung (KRX: 005930) stated that it had sold its shares in several companies, and we’ve outlined a few reasons why the tech giant would have resorted to such a decision.

Samsung (KRX: 005930) Raising Cash by Selling Stakes In a Number of Companies – Company Claims It’s Doing This to Stick to Its Core Business

Samsung (KRX: 005930) made a statement on Sunday that it has sold shares in the following companies (percentage of stake also reported by the company):

  • Seagate (4.2 percent)
  • Rambus (4.5 percent)
  • ASML Holding NV (2.9 percent)
  • Sharp (0.7 percent)

While Samsung (KRX: 005930) has yet to disclose how much cash it would be able to raise from these share sales, sources close to this matter have said that the South Korean manufacturer was selling about half of its stake in ASML Holding NV for $676 million, while the company’s stake in Rambus, Seagate and Sharp have been calculated to be valued at more than $500 million. Samsung’s business cooperation with those firms would remain intact, despite the share disposals.

The only possible explanation for this decision would be to receive alleviation from the costs garnered thanks to the smartphone’s industry’s biggest recall to date. The recall was initiated due to a volatile battery issue plaguing millions of Galaxy Note 7 units. However, under the leadership of heir apparent Lee Jae-yong, Samsung (KRX: 005930) has been moving to shed non-core assets to raise cash as the intention of expansion has been moved to the back-burner, which includes bio-pharmaceuticals. While this is my opinion on the matter, it is also possible that the cash raised could be used to expedite the launch of Galaxy S8 to compensate for losses caused by the Galaxy Note 7 debacle.

Over the past decade, Samsung (KRX: 005930) has used its massive manufacturing scale to expand into smartphones, televisions and components such as displays and semiconductors. Unfortunately, top executives believe that those markets are no longer able to generate the huge growth returns Samsung (KRX: 005930) has seen in the past. Samsung (KRX: 005930) recently saw investors dump its shares in the wake of the recall crisis, resulting in the company losing more than $10 billion of its market value on Friday, September 9, followed by another $15.9 billion the following Monday. Though Samsung (KRX: 005930) is doing everything in its power to normalize the situation as quickly as possible, the company is still under pressure to address the issue at a much faster pace.

What reasons do you believe could the company have to sell its stakes in the aforementioned companies? Tell us your thoughts right away.

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