Palliser urges Samsung to buy back shares

An examination cited by the UK-based activist fund Palliser Capital indicates that over 86 trillion won, roughly $64.24 billion, is linked to South Korea’s significantly undervalued preferred shares. The firm has urged Samsung Electronics and Hyundai Motor to focus on purchasing and canceling these underpriced preferred shares to boost shareholder returns.

James Smith, Palliser’s chief investment officer, emphasized the systemic underpricing of Korean preferred shares during the Sohn Investment Conference in San Francisco on Oct. 13, local time. The firm’s study reveals that the median discount across the 30 largest preferred-share classes listed in South Korea by market cap is 46%, far surpassing the approximately 5% discount observed in major developed economies.

Palliser’s Proposal for Samsung Electronics

Palliser has put forward three primary initiatives for Samsung Electronics. It urges the company to allocate remaining shareholder-return funds this year toward preferred-share buybacks and to target a reduction of the preferred-share discount to roughly 10% within its 2027–2029 shareholder-return strategy.

The fund also advised Samsung to issue American depositary receipts (ADRs) in the U.S. at a premium and utilize the proceeds to repurchase and retire lower-valued preferred shares listed in South Korea. Currently, Samsung Electronics’ preferred shares trade at a discount of about 26% compared to its common shares.

Impact on Shareholders

Palliser contends that acquiring discounted preferred shares represents a capital-efficient strategy since these shares grant identical economic rights as common shares, except for voting privileges. Eliminating the undervalued shares would enable Samsung to reduce more shares per dollar spent, potentially raising per-share value and benefiting common shareholders.

Hyundai Motor is another focus of Palliser’s campaign. Its three preferred-share classes trade at an average discount of around 48% relative to common shares. The fund has pressured Hyundai Motor to direct the majority of its planned share buybacks, amounting to as much as 4 trillion won for 2025–2027, toward preferred shares.

Response from Samsung Electronics

Samsung Electronics has stated it is evaluating methods to narrow the discount on its preferred shares. In 2015, the company allocated 35% of its share-buyback budget to preferred shares to address the discount. At that time, Samsung noted that eliminating additional shares with the same funds would benefit all shareholders.

South Korean asset managers are also urging Samsung Electronics to increase preferred-share buybacks and cancellations. Life Asset Management and Petra Asset Management have recently submitted shareholder letters advocating this approach. Life Asset Management specifically argues that legal constraints under the Act on the Structural Improvement of the Financial Industry hinder common-share cancellations due to holdings by Samsung Life Insurance and Samsung Fire & Marine Insurance. It asserts that retiring preferred shares, which face fewer restrictions, provides a viable alternative.