[Q&A] Fair Trade Commission: "No Proven Link Between Samsung Welstory's Unfair Support and Vice Chairman Lee Jae-yong's Succession"

Yuk Sung-kwon, Director of the Corporate Group Division at the Fair Trade Commission, is briefing on the morning of the 24th at the Government Complex Sejong in Sejong City regarding the sanctions on Samsung Group's unfair support practices favoring Samsung Welstory in internal meal services.
[Photo by Yonhap News]

[Sejong=Asia Economy Reporter Joo Sang-don] Yuk Seong-kwon, Director of the Corporate Group Division at the Korea Fair Trade Commission (KFTC), stated on the 24th, "Samsung Welstory served as a key funding channel for the Samsung family, and Welstory's profits contributed to the merger process between Cheil Industries and Samsung C&T. However, the connection between Welstory's unfair support and Vice Chairman Lee Jae-yong's succession of Samsung Electronics' management has not been proven."

Director Yuk made these remarks during a briefing on the 'Sanctions on Unfair Internal Transactions of the Samsung Corporate Group' held at the Government Complex Sejong on the same day.

He explained, "The plenary session did not recognize that the unfair support acts in this case were carried out to create a merger ratio favorable to Cheil Industries during the merger process between Cheil Industries and the former Samsung C&T for Vice Chairman Lee's succession. Also, the so-called Project G and the unfair support acts in this case were not found to be related. I would like to emphasize that the connection between Vice Chairman Lee's succession and the support acts in this case was not acknowledged."

The following are the main points from the Q&A session between Director Yuk and the press corps.

▲ Since when does it appear that Samsung planned to make Welstory a cash cow (funding channel) to contribute to the Cheil Industries-Samsung C&T merger process?

= Although there was suspicion that the Future Strategy Office (FSO) led unfair internal transactions prior to 2013, we (KFTC staff) could not prove any legal violations before that due to limitations in evidence collection. We were able to detect violations starting from 2013 because at the end of 2012, a meal service dissatisfaction incident occurred at Samsung Electronics, and as Welstory's direct profit margin sharply declined during that process, evidence of FSO's involvement began to be secured. Therefore, we obtained evidence from 2013 onwards showing that the existing profit structure was maintained, the in-house meal volume was fully allocated to Welstory, and transaction conditions were unilaterally set favorably for Welstory. Hence, we set the timing of the legal violations from 2013 onward.

▲ Why did the Future Strategy Office order support for Welstory?

= Regarding the background, from the perspective of Everland, where the Samsung family holds a high share, it was deemed necessary for Welstory to play the role of a cash cow generating stable high profits. According to the first quarterly report disclosed by Samsung C&T after the merger (Cheil Industries-Samsung C&T), 74% of Samsung C&T's total operating profit came from Welstory. Furthermore, the corporate valuation report assessed by an accounting firm showed that the value of the Welstory division was almost equal to that of the merged company, the former Samsung C&T. Also, from 2015 to 2019, Samsung C&T, where the Samsung family is the largest shareholder, received a significant portion of Welstory's net income?about 270 billion KRW?as dividends. We judged that this support act was carried out due to the need to utilize Welstory's role as a cash cow. Although we could not confirm a connection with the succession process, we detected the acts of allocating work and setting favorable transaction conditions by the FSO.

▲ How were Welstory's profits used?

= Since money does not come with tags, we could not confirm exactly how the money was used. However, a large amount of money was needed due to stock purchase rights exercises and similar reasons. In 2017, Welstory's net income was 81.1 billion KRW, and the distributable profit under the Commercial Act was 93.8 billion KRW. Samsung C&T took 93 billion KRW as dividends. The dividend payout ratio exceeded 100% of net income. Considering these circumstances, we presume that the money was ultimately used for such purposes.

▲ How much of Welstory's profits did the Samsung family receive?

= As of the end of October 2020, Vice Chairman Lee and the Samsung family held a 31.58% stake. It can be assumed that this proportion of the dividends taken by Samsung C&T was again attributed to the Samsung family.

▲ Why did the KFTC previously reject Samsung's proposal for a consent decree?

= The Monopoly Regulation and Fair Trade Act stipulates cases where a consent decree cannot be applied. One of these conditions is when the violation is serious and clear enough to require prosecution. The Commission likely decided not to initiate the consent decree process for this case because it met that condition.

This content was produced with the assistance of AI translation services.