A Singapore-based activist fund has proposed acquiring a subsidiary of Samsung Group, arguing that its shares are undervalued. This move represents the first major challenge to South Korea's newly revised shareholder protection regulations.
Flashlight Capital Partners sent a letter on Thursday to five Samsung Group affiliates, proposing to invest 906.6 billion won ($655 million) to purchase a combined 20.6% stake in S-1 Corporation, which they currently hold. S-1 is the largest security services company in South Korea. This tender offer would grant Flashlight management control of the company, marking the first time an activist investor has launched a takeover bid for a Samsung affiliate. The offer price reflects a 45% premium over Wednesday's closing price, and following the news on Thursday, S-1 shares rose 7%.
Lee Sang-hyun, Managing Partner at Flashlight, stated that South Korea's revised Commercial Act provides the fund with confidence. The legislation, amended in July last year, legally mandates that company directors must consider the interests of all shareholders. According to corporate governance experts, prior to this amendment, boards of family-run conglomerates, known as chaebols, which dominate the nation's economy, typically prioritized protecting the controlling family's interests.
"The responses from the boards of these five companies will test whether directors truly serve all shareholders," Lee said. The boards in question belong to battery maker Samsung SDI, Samsung Life Insurance, Samsung Fire & Marine Insurance, brokerage Samsung Securities, and credit card firm Samsung Card.
Back in June, the fund had already written to the S-1 board urging improvements in corporate governance and a boost to its share price. The tender offer comes against a backdrop of S-1's shares having fallen by nearly a third over the past decade. Lee described the board's responses as "extremely hollow," expressing shock upon learning that "the board has never attempted to calculate the company's fair value."
He pointed out that while S-1 holds half of the domestic security services market, its stock trades at a significant discount: its price-to-earnings ratio is around four times its annual operating profit, compared to 12 times for industry runner-up SK Shieldus and 10.6 times for international peers. In its June letter, Flashlight stated, "S-1 is the industry leader, but its smaller competitor SK Shieldus is comprehensively ahead in terms of growth, profitability, and valuation." The fund added, "This is not an operational issue but a governance one," noting that over the past 25 years, all of S-1's CEOs have come from within the Samsung Group without security industry experience.
S-1 denies any governance issues, stating it has multiple independent directors and emphasizing its "high priority on boosting share price and shareholder value." The company said, "Regarding the company's fair value, we refer to the methods used by brokerage analysts to calculate target prices in order to obtain an objective market perspective." S-1 noted that its current CEO is a "professional manager" with experience at Samsung Electronics and Samsung C&T's construction division, while the head of its security business has industry-specific experience. The company also mentioned that its annual dividend per share is 3,200 won ($2.30), maintaining a payout ratio of around 60%, significantly higher than the market average.
Flashlight stated it will "keep all options open" until it receives responses from each of the five Samsung boards, emphasizing that selling their non-core stakes in S-1 could free up capital for investment in core businesses or for returning profits to shareholders. Japanese security firm Secom is S-1's largest shareholder with a 25.65% stake but does not actively participate in the Korean company's management. According to sources familiar with the matter, Flashlight, which holds less than 5% of S-1 shares, also plans to attempt purchasing shares from Secom in the future.
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