Lotte Group’s ‘One Stone Three Birds’ asset reallocation… The winners are Well Food, Home Shopping, Holdings, and C&T.

Individual shareholder interests may differ, but if
you consider the pros and cons at the group level, there is no reason not to do it.
If it is a listed company, shareholders’ positions may differ regarding the sale price, so

the business world is paying attention to Lotte Group’s successive asset reallocations between affiliates.

The plan is for Home Shopping to purchase the Lotte Home Shopping headquarters building owned by Lotte Well Food and Lotte Holdings, and as Lotte Well Food is seeking to sell its Yeongdeungpo factory, Lotte C&T, an unlisted company, is purchasing it.

Of course, it is unclear whether it will work out as planned. Regarding the purchase of Lotte Home Shopping’s office building, Taekwang Industrial, the second largest shareholder, expressed opposition, and Lotte Well Food also said, “We are considering the sale from various angles, but no decision has been made.”

However, the securities industry seems to be considering the reallocation of Lotte Group’s assets as a fait accompli. The analysis is that this type of restructuring is a transaction that there is no reason not to do when considering the pros and cons at the group level.

Well Food can secure cash reserves and make all-out efforts to expand overseas, and the holding company can lower its debt ratio and take the lead in developing the Yeongdeungpo factory, which is a valuable site for C&T. This is the so-called “killing three birds with one stone” effect.

Sale of headquarters in Yangpyeong-dong… The winner among Lotte Home Shopping, Lotte Holdings, and Lotte Well Food
① The sale price of the office building is profitable for Lotte Home Shopping.

It is known that Lotte Home Shopping is buying a 13,793 pyeong building with 3 underground floors and 19 above-ground floors on 2,124 pyeong of semi-industrial land at 21 Yangpyeong-dong 5-ga, Seoul for a total of 203.9 billion won.

This is KRW 95.99 million per pyeong based on land and KRW 14.84 million per pyeong based on total floor area, which is believed to be cheaper than the market price in the real estate industry.

Looking at the sales of land and large buildings traded in the Yeongdeungpo-gu area of ​​Seoul from 2020 to 2023, out of a total of 9 sales, there were two cases where the price per pyeong based on the total floor area of ​​Lotte Home Shopping’s Yangpyeong office building was lower. The MG Credit Information Building in Dangsan-dong 1-ga, Yeongdeungpo-gu, traded in March 2022 (KRW 10.66 million per pyeong, based on total floor area) and the Comtech System Building in Daerim-dong, Yeongdeungpo-gu, traded in December last year (KRW 14.74 million, based on total floor area) were lower than the sale price of the Lotte Home Shopping headquarters building

. An official from the implementation industry said, “The price reflects various factors such as market atmosphere, location, total floor area, and rental status, but the Lotte Home Shopping headquarters building can be evaluated as being traded at a relatively low price.” He added, “However, the legal review process is conducted through various methods such as appraisal. “I think I’ve done enough,” he said. ② Looking only at the effect of securing cash , if the profit sale price to Lotte Holdings and Lotte Well Food is lower than the market price, it is a loss for Lotte Holdings and Lotte Well Food, which are listed companies, and a profit for Lotte Home Shopping, an unlisted company. Although the interests of shareholders may differ, it is not a big loss for Lotte Group.

Lotte Holdings and Lotte Well Food own 64.6% and 35.4% of this headquarters and land, respectively, and if it is sold for 203.9 billion won, Lotte Well Food can get 72.1 billion won and Lotte Holdings can get 131.7 billion won.

From Lotte Holdings’ perspective, the inflow of cash can have the effect of lowering the debt ratio. Lotte Holdings’ debt ratio in the first half of the year was 130%, which can lead to improvement in its financial structure.

In addition, Lotte Well Food can use it as funds to target overseas markets and create new growth engines.

Lotte Well Food has limitations in its growth in Korea due to changes in demographic structure. Instead, they are looking for a way out overseas. Lotte Well Food’s overseas division’s second quarter sales and operating profit recorded 207.7 billion won and 15.7 billion won, respectively. This is an increase of 4.4% and 14.6%, respectively, compared to the same period last year.

Among these, sales in India in the second quarter accounted for 41.5% of total overseas sales. A food industry official said, “It is important to succeed in a market with a growing population,” and added, “Only then can food companies shed the stigma of being a company for domestic consumption and have their company value re-evaluated.”

Yeongdeungpo factory sold, who will benefit between Lotte Well Food and Lotte C&T?
It is difficult to weigh the exact pros and cons of handing over the Yeongdeungpo factory owned by Lotte Well Food to Lotte C&T as it is still in the conceptual stage. This is because the most important sale price has not been announced.

Assuming that Lotte Well Food receives the full price and hands it over to Lotte C&T, Lotte Well Food has the advantage of being able to pursue much greater growth opportunities by securing cash.

From Lotte C&T’s point of view, it is profitable as long as it is guaranteed that greater profits can be made through development projects. The proportion of sales from Lotte C&T’s affiliates is high. As of the end of last year, rent received from Lotte Group affiliates accounted for about half of sales. Since 2019, the proportion has hovered over 50%. If development projects decrease, dependence on sales from affiliates may increase, so Lotte C&T must continuously review메이저놀이터 development projects.

A real estate industry official said, “Price is the most important, but if it can be purchased, it is a prime location that will be considered as a top buyer candidate,” adding, “However, considering the various symbolic factors, I do not think Lotte Group will sell it to the outside unless the company is in difficult times.” This means that it is viewed as land that cannot be purchased even if one wants to.

The Yeongdeungpo factory was created as a state-of-the-art manufacturing plant by the late Shin Kyuk-ho, the founder of Lotte Group, when he established Lotte Well Foods (Lotte Confectionery), Korea’s first general food company, and was the birthplace of Lotte Group.

For Lotte Group, it is good in that it can fully preserve the symbolism of the site itself. Simply building apartments or offices on this site could result in greater profits, but this means that it is an important site that can imprint the spirit of Lotte Group’s founder in consumers. From the group’s perspective, it is an intangible asset that cannot be valued.

However, from Lotte Corporation’s perspective, buying cheaply is the most important thing. Lotte C&T has a good financial structure, with a debt ratio of 90.3% and net borrowing dependence of 24.8% in the first half of the year, but it stepped in as a financial rescuer at the end of last year amid suspicions that Lotte Group was temporarily facing a liquidity crisis. Thanks to this, Lotte C&T also suffered the humiliation of being tied to the group and having its credit rating downgraded.

An official from a credit rating agency said, “If Lotte C&T has to play a role as a fund rescuer for its affiliates in the future, it will have to consistently manage its debt ratio, and for this reason, I don’t think it will put an unreasonable price on the Yeongdeungpo factory to buy it,” adding, “As long as the price is reasonable, each party will benefit.” “It could be a reallocation of assets,” he said.

An official from the business world also said, “If you look at the recent asset transfers surrounding Lotte Group, it is an asset reorganization with no losses at the group level,” adding, “There may be conflicting interests among shareholders of each company, but if it is a transaction between unlisted companies rather than listed companies, “There will be no major problems such as violations of legal procedures,” he said.

Leave a Reply

Your email address will not be published. Required fields are marked *