Lotte expands into new markets with M&As

Faced with shrinking domestic consumption that has negatively impacted the sales of major retailers, Lotte is poised to diversify its business portfolio through different mergers and acquisitions.

While some analysts consider the move a viable strategy to maximize revenue streams, others express concerns about whether the buying spree will put too much pressure on the company.

The top retailer’s efforts are most evident in its purchase of KT Rental, the country’s No. 1 car rental company. Multiple media outlets reported that Lotte Group expressed an intention to pay more than 1 trillion won ($900 million) for the deal, though the value of the company was initially estimated to be 600 to 800 billion won.

Lotte’s aggressive bidding made it the preferred choice for the purchase late last month. The retail company said that the car rental business was worth the price while declining to reveal the specific bid it made.

“The car rental business can be a new growth engine for Lotte,” said a source at Lotte Group who asked for anonymity. “It’s too early to say that how Lotte will create synergies with KT Rental, but there could be different scenarios.”

One way is to attract tourists to use the car rental service by cooperating with Lotte’s travel-related businesses.

Other analysts indicated that it could expand rental services to various home appliances given that company operates electronics store chain Hi-Mart and Lotte Department Store, which sells such products.

“It is also important to note that the car rental business is growing annually by two digits,” the source said. “It has developed rapidly, especially over the last five years.”

Despite the rosy prospects, however, the high bid submitted by Lotte has created some worries.

Moody’s has cautiously assessed Lotte’s move to acquire KT Rental.

“Lotte Group’s plans to acquire KT Rental (unrated) will not immediately impact Lotte Shopping Co. Ltd.’s Baa2 ratings or stable outlook, but could pressure the ratings if its financial contribution to the transaction is material,” the financial rating company said.

Yoo Wan-hee, a vice president and senior analyst at Moody’s, listed the potential risks.

“It is premature to assess the impact of the KT Rental acquisition on Lotte Shopping’s credit profile and ratings, because the cost of the acquisition and Lotte Shopping’s contribution to it have not yet been disclosed,” said Yoo. “However, the deal could pressure Lotte Shopping’s ratings if its contribution turns out to be material, given its already high financial leverage.”

Lotte Shopping also submitted a proposal last month to acquire a controlling stake in Italy’s World Duty Free in a deal estimated at 3 trillion won to 4 trillion won.

BY PARK EUN-JEE [park.eunjee@joongang.co.kr]