Lotte drops baton in bid for Hi-Mart

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Lotte drops baton in bid for Hi-Mart

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Lotte Group Chairman Shin Dong-bin yesterday lost what market observers call “an almost-won battle” to acquire the nation’s largest electronic appliance retailer, Hi-Mart, by proposing a low purchase price to the overseer of the bid.

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Going against the expectations of market observers, a consortium of Eugene Group and Hi-Mart announced yesterday that private equity fund MBK Partners had been picked as the preferred bidder for a 62.25 percent controlling stake in the retailer, rather than Lotte Shopping.

Further details will be decided after the two parties hold negotiations, Hi-Mart said yesterday.

Lotte and two private equity fund firms, MBK Partners and Carlyle Group, competed in the bid. Citi Group Global Markets, which is overseeing the bid, refused to disclose the exact amount proposed by MBK Partners, but market observers believe it is around 82,000 won ($70.6) a share, making the bid a total of 1.25 trillion won. Lotte is estimated to have offered around 75,000 won per share.

According to market watchers, Citi Group Global Markets asked Lotte to raise its bid as it was far below the creditor’s asking price before it makes a final decision, but Lotte declined.

Market analysts see this as a missed opportunity for Lotte to emerge as the nation’s largest electronic appliance retailer.

They said it should have acted more aggressively to capitalize on its expansion into the electronic appliance retail business. Lotte opened its first Digital Park outlet at its Seoul Station branch in 2009. It now has similar outlets at 12 Lotte Mart stores.

This is not the first takeover deal that has seen the group stumble and bow out. It failed in previous attempts to acquire Oriental Brewery in 2009, Daewoo International in 2010 and Korea Express in 2011.

Samsung Securities forecast that MBK Partners will successfully wrap up the deal with Hi-Mart given that the price it offered was 45 percent higher than the current stock price.

“The best scenario for Hi-Mart and its investors would have been for Lotte to clinch the deal, as this would have created the best synergy effect, but yesterday’s announcement effectively put an end to lingering rumors and possibilities that the bid itself might collapse,” said Nam Ok-jin, an analyst with Samsung Securities.

Kim Min-a, an analyst at Daewoo Securities, said that competition in this retail segment will heat up as Lotte will not sit back and cede its market share.

“Before publicizing its intention to acquire Hi-Mart, Lotte Shopping set a goal of raising the annual revenue of its Digital Park business to 10 trillion won by 2018,” Kim said.

“Hi-Mart, currently the No. 1 player in the market, is estimated to reap about 3.5 trillion won in sales this year.”

Kim said Hi-Mart’s shares may be negatively impacted in the short term by Lotte and Shinsegae’s ramped-up efforts to secure a stronger footing in electronic appliances market.

Lotte is seeking independent expansion and Shinsegae hopes to buy ETLand, which also sells electronic appliances.

Other analysts say that MBK Partners may need help running Hi-Mart due to a lack of retail know-how.

The stock market responded poorly to the news, with Hi-Mart’s shares closing down 7.4 percent yesterday at 51,300 won. Lotte Shopping ended at 302,000 won, a drop of 3.97 percent from the previous day.

By Kim Mi-ju [mijukim@joongang.co.kr]

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