Samsung Heavy and Engineering to merge in succession move for new Lee heirs
By Joel Lee
South Korean conglomerate Samsung Heavy Industries announced its plan on Monday to absorb Samsung Engineering in a $2.5 billion merger and acquisition process to be completed by Dec. 1.
The stock exchange ratio has been set at 2.36 shares of Samsung Engineering per one Samsung Heavy share.
Industry watchers say the restructuring drive is part of an effort to facilitate the group’s management succession to the next generation of owners – the heir apparent Jay Y. Lee and his two sisters – from the 72-year-old de facto head Lee Kun-hee, who has been hospitalized since May following a heart attack.
Monday’s deal, which saw both companies’ shares hike and caught investors off guard, is expected to help consolidation of Samsung’s interlocking businesses, making it easy for the Lee heirs to inherit their new assets and gain control over their business portfolios, analysts say.
The new company, with its new name, plans to become a comprehensive offshore plant builder with annual revenue of 40 trillion won by 2020, up from 25 trillion won in 2013.
“We will revamp competencies in the marine plant industry, considered as one of the leading markets of the future,” Samsung Heavy said in a regulatory filing.
“Through the merger, the two have built the groundwork to be a top-class engineering, procurement and construction firm.”
The two groups’ new move is expected to create efficiencies for both sides, with Samsung Heavy soaking up Samsung Engineering’s talent in design, purchase and management of plant-related projects, and Samsung Engineering benefitting from the shipbuilder’s economies of scale.
The planned initial public offerings of Cheil Industries Inc – the former Samsung Everland – and Samsung SDS Co Ltd are regarded as critical elements of the succession proceeding.
Samsung Engineering suffered a 1.03 trillion won operating loss last year while Samsung Heavy experienced an operating loss of 362.5 billion won in the first quarter of this year.
The AsiaN Reporter, joel@theasian.asia 
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