Samsung Electronics said Thursday it would not create a holding company, rejecting demands from activist hedge fund Elliott Management to reshape its corporate structure.

“After conducting a comprehensive review with external advisers, the company’s board of directors has decided not to convert to a holding company structure,” Samsung said. 

The company said the review found that a holding company structure would not strengthen the competitiveness of the company’s businesses and could potentially weigh on the company’s operations longer term.
 
The review also found a number of “issues” that may result from the process of converting into a holding company, it added.

“Creating a holding company would require divestments of equity stakes held by the company and its affiliates. This would need the approval of the board of directors and the shareholders of each of the relevant companies,” the company said.

In addition, current laws could force the company’s financial affiliates that own shares in the company to divest part or all of that stake, which could potentially cause volatility in the company’s share price, the tech giant said.

On Oct. 6, Elliott, through its affiliates Blake Capital and Potter Capital, sent a letter to Samsung Electronics’ board members suggesting to split the tech giant into holding and operating companies and list the operating unit on the Nasdaq stock exchange.

The tech giant said previously it would review the demand.

Industry watchers said the leading presidential candidate’s latest pulling back from his previous hard-line stance on chaebol might have affected Samsung‘s decision. Moon Jae-in of the Democratic Party of Korea on April 17 pulled out the abolition of cross-shareholding from his final campaign pledges. The ban on cross-shareholdings is considered a key to overhaul the corporate structure of conglomerates.

Currently, Samsung affiliates are linked through a complicated web of cross-shareholding, linking Samsung Electronics to many other Samsung firms. Elliott demanded the reform of the opaque, densely cross-linked holding structure of the Samsung kingdom.

“If the strong presidential candidate had pushed for the abolition of cross-shareholding, Samsung may have made a different decision,” said Park Ju-gun, chief executive at CEO Score, a private corporate watchdog.

Samsung’s investor relations head Lee Myung-jin said during a conference call on Thursday the cross-shareholding issue should be addressed together with several affiliates, adding, “The company will entirely solve the issue in a way that minimizes market effects, although it may take time.”

“It is not the right time for Samsung to make a new business strategy ahead of the presidential election. The company will take action depending on the new administration’s chaebol policies,” said Chung Sun-sup, CEO of chaebul.com, which tracks Korea’s family-run conglomerates.

“One thing for sure is the measures toward conglomerates will become tougher in the next administration and they must unveil how to make their organizations more transparent,” Chung added.

Following Samsung’s decision on a holding company and the announcement of strong earnings, the company’s stock price hit a record-breaking 2.2 million won ($1,950) Thursday morning.

By Shin Ji-hye (shinjh@heraldcorp.com)