Samsung Elec jumps on hostile bid report

SEOUL (Reuters) - Shares in Samsung Electronics Co. Ltd. (005930.KS) shot up more than 6 percent on Friday to their highest in nearly 15 months, after a newspaper said the world's top memory chip maker was preparing to defend against possible hostile takeover attempts by foreign funds.

Shares received an additional boost after Samsung posted a smaller-than-expected 5 percent drop in quarterly profit and said it would issue 73 billion won in interim dividends.

The Chosun Ilbo quoted an unnamed high-ranking Samsung official as saying that the company received information that U.S. billionaire investor Carl Icahn and other hedge funds were readying hostile M&A bids for Samsung.

Possible defense measures for Samsung, South Korea's biggest company with a market value of around $104 billion, include selling shares to friendly investors, the newspaper said.

Analysts saw the report as a sign that foreign investors, who own 49 percent of the company, may be increasing pressure on top management to boost the share price, which had risen only 19 percent in the past two years by Thursday's close, lagging the benchmark KOSPI's 83 percent rise.

"I think the possibility of unfriendly takeover bids is low, because a large part of the company's value lies in its chairman, Lee Kun-hee, and top management," said Yoo Jung-sang, chief investment officer of PCA Investment Trust Management.

"But from the perspective of shareholders who are unhappy with the stock's sharp underperformance, there might be expectations that hostile bidders would buy a portion of the shares and pressure the company to take action, such as share buybacks, to lift its share price."

Icahn did just that with South Korea's KT&G (033780.KS) last year, buying more than 5 percent of the cigarette maker with Warren Lichtenstein and gaining a board seat. KT&G ended up pledging last August to return up to 2.3 trillion won ($2.51 billion) to shareholders in the next three years.

Icahn cashed in most of the investment in the tobacco company in December, earning an estimated $120 million in capital gains, sources had told Reuters.

Chu Woosik, Samsung's executive vice president of investor relations, said on Friday that he was unaware of such an attempt by Icahn but that the company would not be caught off guard.

"We have an appropriate set of strategies in place that we'll implement," he told a conference call with analysts, when asked about the Chosun Ilbo report.

Samsung shares hit a high of 686,000 won on Friday, the most since reaching 690,000 won on April 24, 2006. They were up 6.0 percent at 685,000 won by 0523 GMT, against the KOSPI's 2.4 percent rise.

Samsung spent 1.8 trillion won ($1.96 billion) in buying back its shares from the market between January and March 2007, after repurchasing the same amount last year, to boost share prices. It said on Friday it does not plan additional buybacks this year.

Samsung's five-year credit default swaps -- insurance-like contracts that protect against restructuring and defaults -- widened by 5-6 basis points to 15/17 bps.

Chairman Lee and related shareholders, including his wife, son and top executives of the Samsung Group SAGR.UL, control 27.9 percent of Samsung Electronics, according to the latest filing with regulators.

Among them, unlisted Samsung Life Insurance is the single biggest shareholder with a 6.28 percent stake.

($1=917.4 Won)