Shilla may acquire duty-free group

Hotel Shilla, the hotel and duty-free arm of Samsung Group, gave an ambiguous answer on Tuesday to rumors that it is seeking to acquire the world’s largest in-flight duty-free company, DFASS Group.

The Korean company said it was looking into ways to cooperate with the U.S. company, but said that no specific decisions have been made.

However, the company said it plans to make an announcement within a month once the details have been ironed out.

Late Monday, reports that Hotel Shilla was interested in acquiring DFASS led to an increase in Hotel Shilla’s stock value on the Kospi on Tuesday. Hotel Shilla shares increased by 5.5 percent when the market opened at 9 a.m. After adjustments later in the day, it closed at 3.94 percent, at 105,500 won ($96).

The stock market operator Kospi asked Hotel Shilla to confirm the rumors by 6 p.m.

“Since DFASS came out in the M&A market, many duty-free operators including Hotel Shilla are interested in the American company,” a spokesperson for the hotel said in response to Kospi’s request. “But nothing has been finalized so far.”

Under the command of Lee Boo-jin, the president of Hotel Shilla and eldest daughter in the Samsung Group family, the hotel has in recent years been aggressively expanding its duty-free business. Lee became president in 2010.

Thanks to Lee’s initiative, Hotel Shilla’s operating profit almost doubled between 2011 and 2014, rising from 96 billion won to 213.1 billion won.

Its duty-free business in particular has become a major cash cow. While its hotel business suffered operating-profit losses of 6.1 billion won, its duty-free unit posted 30.9 billion won in operating profit in the fourth quarter of 2014.

Lee’s biggest project was to improve the company’s shops by bringing in major international luxury fashion and cosmetics brands to Shilla Duty Free stores in Singapore Changi Airport and Macau International Airport, two duty-free hubs in Asia.

The company’s decision to acquire the American duty-free chain is a strategic step to enter the in-flight duty-free market, an area with less competition.

According to reports from the local duty-free industry, Hotel Shilla selected Goldman Sachs to supervise the negotiations of the acquisition.

Hotel Shilla is known to have been pushing to acquire DFASS since the end of last year, according to industry insiders.

DFASS founder and CEO Benny Klepach visited Korea in November to discuss the acquisition with officials from Hotel Shilla. The Shilla spokesperson confirmed that the company wanted to acquire DFASS to expand its offline and in-flight duty-free businesses.

DFASS was established in 1987 and has the world’s largest onboard duty-free shops. It records annual sales of about $500 million.

The company supplies tax-free products to 30 carriers worldwide that operate in-flight duty-free shops, including American Airlines, Air Canada and Singapore Airlines, and operates about 40 offline duty-free shops at regional airports in the United States and South America.

BY KIM CHANG-GYU, LEE SO-AH AND KIM JI-YOON [jiyoon.kim@joongang.co.kr]