Four core Lotte companies to demerge into holding, operating entities

2017.04.21 13:35:48 | 2017.04.21 15:36:00

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South Korea’s fifth largest conglomerate Lotte Group has become the latest to join the reorganization wave sweeping across family-run Korean listed members by breaking up into holding/parent and operating entities or starbusting to simplify their traditional sprawled ownership structure based on multi-layered cross-sharing.

According to sources from the investment banking industry on Friday, the group’s four affiliates Lotte Shopping Co., Lotte Confectionery Co., Lotte Chilsung Beverage Co. and Lotte Food Co. will hold separate board meetings next week to vote on plans to break up their business structure into holding and operating companies. Eventually, the four holding entities will come under Hotel Lotte to make it sole parent entity. The scheme would make the subsidiaries wholly owned by the parent entity.

The news of split-off lifted the relevant stocks. Shares of Lotte Shopping closed Friday at 245,000 won, up 4.48 percent or 10,500 won while those of Lotte Confectionery finished at 211,500 won, up 1.2 percent from the previous session. Lotte Chilsung Beverage shares gained 4.35 percent to finish at 1,582,000 won and those of Lotte Food rose 2.52 percent to 651,000 won.

Lotte Shopping and Lotte Confectionery so far acted as the pillars of the conglomerate as they hold stakes in multiple sister companies. Lotte Shopping holds a 93.78 percent stake in Lotte Card, 38.68 percent in Lotteria, 34 percent in Daehong Communications, 27.68 percent in Lotte Trading and 3.45 percent in Lotte Food. Lotte Confectionery owns an 18.33 percent stake in Lotte Chilsung Beverage, 13.59 percent in Lotteria, 9.32 percent in Lotte Food and 7.86 percent in Lotte Shopping.

If the reorganization goes through as planned, the group’s ownership structure would become much simplified. The merged holding entity of the operating subsidiaries would be placed under Hotel Lotte Co., the group’s de facto holding company. The plan would also help Lotte significantly rationalize its complex cross-shareholding web.

The conglomerate would, however, be able to finalize its spinoff when the much-delayed Hotel Lotte’s initial public offering takes place. The group’s plan to list the hotel unit has been upset by a series of stumbling blocks including a prosecution probe on the influence-peddling scandal involving former president Park Geun-hye and her friend Choi Soon-sil and China’s retaliatory actions over its yield of a site to the government to deploy the U.S. anti-missile system. The group hopes to use the IPO proceeds for stock transactions necessary for the mass-scale reorganization.

By Son Il-seon and Han Woo-ram

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