Hedge Fund Urges Samsung to Cancel Preferred Shares

Life Asset Management, a South Korean hedge fund managing about $4 billion, sent a letter to Samsung Electronics’ board and management this week urging the company to repurchase and cancel its preferred shares. The fund requested the board consider the plan at its October meeting and complete cancellations by December.

Life Asset proposed allocating up to KRW73 trillion of Samsung’s shareholder-return programme to preferred-share repurchases after accounting for regular and special dividends. Samsung has announced a shareholder-return package of as much as KRW110 trillion for the year. The fund did not disclose the size of its Samsung holding.

The letter states preferred shares trade at a discount of more than 25% to common shares and argues targeting preferred stock would be a more efficient use of buyback capital. The fund calculated Samsung could cancel about 1.36 preferred shares for the capital required to repurchase one common share.

The proposal could affect Samsung’s ownership structure and regulatory position. Shifting a larger portion of buybacks to preferred stock would reduce the number of outstanding preferred shares and could alter the balance of voting common shares. The fund pointed to a Korean rule that limits financial affiliates from holding more than 10% of voting common shares.

Market reaction followed the campaign: preferred shares rose as much as 3.3% while common shares increased about 1%. Investor attention on preferred stock has grown as Samsung’s cash flow strengthened after higher demand for AI-related chips.

Samsung’s board will decide whether to include preferred-share repurchases in its KRW110 trillion plan and how to balance dividends, common-share buybacks and any purchase and cancellation of preferred stock.