Samsung boss parole sets high bar for dealmaking

Samsung Group heir Jay Y. Lee arrives at a court in Seoul
Samsung Group heir Jay Y. Lee arrives at a court in Seoul, South Korea, November 9, 2020. REUTERS/Kim Hong-Ji/File Photo - RC2ZXO9NYJ2I

HONG KONG, Aug 10 (Reuters Breakingviews) - Jay Y. Lee's get-out-of-jail-free card prepares the next chapter for Samsung Electronics (005930.KS). The early release of the conglomerate’s de facto boss from prison ramps up pressure on him to use its huge cash pile to make splashy investments. Samsung's heft will force some creative dealmaking. It's a tricky combination to manage well.

Lee's parole marks a huge setback for South Korea's corporate governance reformers. The 53-year-old had served less than two-thirds of a 30-month sentence - already reduced from five years - for bribery, embezzlement and other charges. Advocates for his early release, including business lobby groups and the local chapter of the American Chamber of Commerce, had argued that the $480 billion tech powerhouse was unable to make major investments and acquisitions with its key decision-maker behind bars. Citing Lee's good behaviour and the country's pandemic-hit economy, officials relented.

Pressure for Samsung to deploy its warchest, which stood at roughly $82 billion in net cash as of June, has been building. The scandal-plagued company, which dominates the market for memory semiconductors, admitted that it had been constrained in its new businesses. As compatriots SK Hynix (000660.KS) and Hyundai Group as well as global peers like Taiwan Semiconductor Manufacturing (2330.TW) and Intel (INTC.O) in the United States move ahead, Samsung has fallen behind in areas such as contract-chip making, autonomous vehicles, next generation 5G telecommunications, biotechnology and more.

Lee’s focus will probably be on non-memory semiconductors. For example, Samsung is weighing plans for a $17 billion U.S. facility to produce micro-processors, according to Reuters. The ongoing global chip shortage which has hit carmakers the hardest has also fuelled speculation that Samsung may be mulling a bid for $58 billion NXP Semiconductors (NXPI.O), a Dutch auto-chip specialist listed in New York.

Any eagerness to do a deal always risks overpaying. It will also be a challenge to appease governments and competition authorities increasingly wary of chip consolidation. The UK government is fretting about the national security implications of Nvidia's $40 billion purchase of Arm, for instance, as competition concerns from Chinese and American tech giants mount. Against this backdrop, Lee has a high M&A bar to clear.

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- Jay Y. Lee, the de facto leader of South Korea's Samsung conglomerate, has qualified for parole and is expected to leave prison on Aug. 13, the country's justice ministry said on Aug. 9.

- "The decision to grant Samsung Electronics vice chairman Jay Y. Lee parole was the result of a comprehensive review of various factors such as public sentiment and good behavior during detention," the ministry said in a statement.

- Convicted of bribing a friend of former President Park Geun-hye, Lee has served 18 months of a revised 30-month sentence. He initially served one year of a five-year sentence from August 2017 which was later suspended. That court decision was then overturned and while the sentence was shortened, he was sent back to jail in January this year.

Editing by Una Galani and Katrina Hamlin

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Robyn Mak joined Reuters Breakingviews in 2013. Previously, she was a Research Associate for the Global Policy Programs at the Asia Society in New York where she focused on US-Iran relations, US-Myanmar relations and sustainability issues in Asia. She has also worked as a researcher at the Carnegie Endowment for International Peace in Washington DC and interned at several consulting firms, including the Albright Stonebridge Group. She holds a masters degree in international economics and international relations from the Johns Hopkins School of Advanced International Studies and is a magna cum laude graduate of New York University.