SEOUL (Reuters) - Samsung Electronics Co Ltd 005930.KS on Friday said it will not adopt a holding company structure for now, rejecting demands from U.S. activist hedge fund Elliott Management and putting off a long-anticipated restructuring.

Kwon Oh-Hyun, co-chief executive officer of Samsung Electronics Co., speaks during the company's annual general meeting at the Seocho office building in Seoul, South Korea, on Friday, March 24, 2017. REUTERS/SeongJoon Cho/Pool

Investors had expected the global leader in smartphones and memory chips to adopt a holding company structure, as the founding Lee family tries to solidify its control of the Samsung Group [SAGR.UL] flagship.

But Chief Executive Kwon Oh-hyun told the annual shareholder meeting this was unlikely at present, deflating some investors’ hopes that an ongoing review of the company’s organization will lead to Samsung setting up a holding company.

“Samsung had been saying the review would proceed without issues, so the market had accepted that, but now they are saying the transition will be difficult,” said CJ Heo, a fund manager at Alpha Asset Management.

“This will hurt investor sentiment for a while.”

The South Korean tech giant used the general meeting to give investors a sense of how it is approaching the mooted restructuring, which has been thrown into doubt by a political scandal that has embroiled Samsung Group leader Jay Y. Lee.

“There are negative effects that would arise from transitioning to a holding company so it does not appear it will be easy to do so at present,” Kwon said, without elaborating what those negatives were.

The company is continuing its review and will report the results to shareholders when it is completed, he said.

The comments sent shares of Samsung C&T Corp 028260.KS down more than 7 percent in afternoon trade. Some analysts believed the Lee family would seek to merge C&T, Samsung Group's de facto holding company that Lee heirs control, with the Samsung Electronics holding company.

Elliott in October called for Samsung Electronics to adopt a holding company structure by splitting itself in two and pay out a 30 trillion won ($26.75 billion) special dividend.

Samsung announced the review in November but until now has stayed neutral on the holding structure issue.

An Elliott spokesman declined to comment.

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POWER SHIFT

Some investors said any restructuring appeared to have been delayed with Lee’s arrest on charges of bribery, embezzlement and other offences in a corruption scandal that led to the removal of President Park Geun-hye from office.

The 48-year-old leader of Samsung Group and Samsung Electronics’ vice chairman could face more than 20 years in prison. He denies the allegations.

The political turmoil has come at a sensitive time for the Lee family, with Samsung Group patriarch Lee Kun-hee, 75, in hospital since a May 2014 heart attack and his children facing a multi-billion dollar inheritance tax when he dies.

Lee Kun-hee’s frail health appears to have hastened his heirs’ efforts to restructure the group and tighten their grip on key affiliates such as Samsung Electronics.

Many Samsung Electronics investors hope a restructuring will streamline the company, improve its governance and boost its value.

($1 = 1,121.3000 won)