Samsung Electronics has announced that it will sell stakes in Samsung Techwin and Samsung General Chemicals to Hanhwa Corp. in order to raise money for new investments.
Like Samsung Electronics, Samsung Techwin, a defense firm, and Samsung General Chemicals are subsidiaries of South Korean mega-conglomerate Samsung Group.
Samsung Group is also transferring its own stakes in the two units, as well as additional shares in Samsung Thales and Samsung Total Petrochemicals, to Hanhwa Corp. Together, the sales will raise a total of 1.9 trillion won ($1.72 billion) for Samsung Group and is expected to close next June.
In a statement, Samsung Electronics said it is selling its stakes in Samsung Techwin and Samsung General Chemicals to “secure capital resources for investments in new businesses and to strengthen the company’s core competency.”
The deal comes at an important inflection point for Samsung Electronics. As Reuters notes, the sale will help the children of Samsung Group and Samsung Electronics’ chairman Lee Kun-hee, who has been hospitalized since May after a heart attack, reorganize company’s business structure. The capital raised will also help them pay an inheritance tax bill that is estimated to be about 6 trillion won.
Furthermore, Samsung Electronic’s profits have also been falling as it deals with competition from makers of inexpensive smartphones (including Xiaomi, Lenovo, and Coolpad) in key growth markets like China.
Last month, Samsung reported that its Q3 2014 profit fell 49 percent from a year earlier to 4.2 trillion won ($4 billion).It also warned investors that its mobile business will continue to be uneven as other competitors continue to launch smartphones.
Samsung Electronics didn’t say exactly what it plans to invest in with proceeds from the sale of its Samsung Techwin and Samsung General Chemical stakes, but one of the most likely scenarios is rebuilding its rapidly eroding smartphone market share in China. Its latest efforts in that market have included attempting to woo Chinese consumers away from domestic hardware makers like Xiaomi by launching new devices that are in the mid-tier price bracket but still offer premium features like metal cases.