Samsung Electronics Study

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Corporate Finance MSC in Finance Samsung Electronics Contents 1. 2. 5. 6. 9. The Korean Chaebol structure Capital Structure : Samsung Electronics vs Intel Corporation Lee family share in Samsung Motors Samsung Electronics Board of Directors Dr Jang’s allegations of self-dealing 10. Pan-Pacific Industrial Investment Corporate Finance 2 - Samsung For professional investors only. For discussion purposes only. Electronics - February 2012 2 The Korean Chaebol Structure (1/2) § ADVANTAGES - Easy diversification due to brand name reputation and recognition - Economics of scope by synergy effects - Economies of scale by large sizes - Improvements in decision-making - Improvements in capturing new business opportunities § DISADVANTAGES - Lack of business transparency - Autocratic decision making (“Imperialistic management”) - Delay in exits of unprofitable businesses - High management costs (bureaucratic organisation) - Inefficient resource allocation - Lack of timely decision making and adaptation Corporate Finance 2 - Samsung For professional investors only. For discussion purposes only. Electronics - February 2012 The Korean Chaebol Structure (2/2) Governance Issues • Largely dominated by the owning family à massive imbalance of power • Corruption, self-dealing transactions • Families left largely unchecked by other shareholders, the banks, and the government • Top executive positions filled by family-members, with little incentive to perform well ànot likely to be held responsible for poor decisions • Ignore long-term sustainability : top priority of “growth over profitability” + belief that the government would always bail them out Corporate Finance 2 - Samsung For professional investors only. For discussion purposes only. Electronics - February 2012 Capital Structure : Samsung Electronics vs. Intel

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