One Year Left for Samsung's M&A Promise... The 'Big Deal' Is Near

M&A Preview Delayed 2 Years
Cash Assets Exceed 128 Trillion
ARM Acquisition Virtually Canceled... NXP Mentioned Again

Lee Jae-yong, Chairman of Samsung Electronics.
Photo by Yonhap News

[Asia Economy Reporter Han Yeju] The deadline for Samsung Electronics to deliver results from its mergers and acquisitions (M&A) efforts is now just over a year away. In January last year, Choi Yoon-ho, then Head of Samsung Electronics' Management Support Office and now President of Samsung SDI, stated, "We will pursue meaningful M&A deals within the next three years," but no significant news has been heard since. The ammunition is sufficient. Samsung Electronics holds cash assets worth 128 trillion won. The accumulation of cash is positive from a financial soundness perspective. However, it also indicates a lack of proactive investment toward the future. In other words, it is a 'double-edged sword.' Ultimately, it seems that Chairman Lee Jae-yong's bold decisions will change Samsung Electronics' future.

According to Samsung Electronics on the 16th, as of the end of the third quarter this year, the company's cash and cash equivalents (including short-term financial instruments) amounted to 128.1622 trillion won. This is more than double the amount from just five years ago. At the end of June 2017, when Samsung acquired Harman, an audio and automotive electronics subsidiary, for $8 billion (approximately 9 trillion won), the cash holdings were about 53.84 trillion won.

Of course, even if cash holdings exceed 100 trillion won, not all of it can be used for M&A. Some cash must be retained for risk management. Additionally, since 90% of Samsung Electronics' subsidiaries are overseas, the immediately available cash amount drops to tens of trillions of won when considering only accessible funds. While funds can be repatriated, variables such as foreign exchange control policies in respective countries exist. For example, in countries with strict foreign exchange controls like China, it may be difficult to bring large amounts of cash assets back. The cash directly held by the headquarters is estimated to be around 31 trillion won.

However, M&A is essential for the future. There have been continuous calls for Samsung Electronics to pursue cross-border big deals to strengthen its semiconductor business competitiveness. The company has not hidden its intention to grow through acquisitions. In fact, earlier this year, Vice Chairman Han Jong-hee hinted that "good news will come soon," suggesting that M&A is imminent. Such remarks from management indicate that discussions were likely close to actual transactions.

The most prominent M&A candidate was the UK semiconductor design company (fabless) ARM, but it appears to have effectively fallen through. Industry rumors suggest that SoftBank Chairman Masayoshi Son, ARM's largest shareholder, set ARM's valuation higher than its actual worth, stalling the deal. A business insider said, "ARM was considered a valuable asset to boost Samsung Electronics' fabless competitiveness, but Chairman Son's insistence on a high price seems to have prevented the acquisition. Even if companies agreed to jointly acquire ARM, antitrust regulations and regulatory reviews would have posed significant hurdles." The sharp depreciation of the Korean won this year also hindered Samsung's efforts.

Recently, other acquisition candidates have been mentioned. Representative examples include U.S. flash memory company SanDisk and Dutch automotive semiconductor company NXP, both of which Samsung Electronics had previously shown interest in acquiring. In particular, NXP draws more attention due to potential synergies with Samsung's Harman. After his European trip in June, Chairman Lee Jae-yong expressed his intention to invest in the automotive electronics sector, referencing changes in the automotive industry. In the past, Samsung Electronics failed to close a deal with NXP due to valuation gaps, but given the semiconductor industry's sense of crisis, there is a view that bold investments could be made.

Chairman Lee's recruitment of M&A experts and establishment of dedicated teams also raise expectations. This year, he consecutively hired M&A executives from global investment banks (IB) such as Merrill Lynch, and in the regular personnel reshuffle on the 6th, promoted Daniel Araujo, Executive Director of the DX Division Business Support T/F, who has been leading the M&A roadmap development.

The problem is that semiconductor companies' valuations are soaring. Currently, NXP's acquisition price is estimated at around 60 trillion won. It is said to be financially burdensome for the headquarters to cover the purchase price alone. A business insider cautiously remarked, "When Qualcomm attempted to acquire NXP in 2016, the offered amount was about 54 trillion won. With semiconductor supply chain maintenance now a top priority, Chairman Lee Jae-yong might take a bold gamble." The decision of Chairman Lee, who has partially shed the burden of 'judicial risks,' appears to be crucial.

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