Lotte family feud draws to a close

Shin Dong-bin is almost certain to be confirmed as the future chairman of the Lotte Group, both in Korea and Japan, when the retail conglomerate’s shareholders meet on Monday.

The meeting in Japan is expected to only solidify the younger brother’s control, especially since the CEOs of the retail giant’s affiliates have already pledged their allegiance to Dong-bin.

According to Lotte Group insiders, board members of Japan’s Lotte Holdings passed a proposal by Shin - during a visit with Chairman Dong-bin to Shanghai, China, on Jan. 21 - naming him as head of Lotte’s Japan businesses and integrating the management
of both the Korean and Japanese
operations.

The decision was made not long after the older brother Dong-joo was stripped of his title as vice chairman of Lotte Holdings on Jan. 28. Dong-joo had already lost his executive status with other Japanese affiliates late last year.

The board’s emergency meeting was held at the Lotte Holdings’ headquarters in Tokyo chaired by CEO Takayuki Tsukuda, under the premise of determining the company’s mid- and long-term strategies.

“Chairman Shin [Dong-bin] participated in the board meeting in the form of a conference call,” said a high-ranking executive at Lotte. “At the time he used six mobile phones and held a ‘marathon’ meeting.”

After the board meeting, Lee In-won, vice chairman of Lotte Group in charge of policies, Hwang Gak-gyu, Lotte President, as well as Tsukuda said the “situation is completed,” which can be interpreted that the legal process in solidifying the control of Lotte Group under one leader, Dong-bin, had been completed.

Chairman Shin in particular focused on efforts in securing the shares of Lotte Holdings, which controls Lotte in Korea.

One of the biggest moves by Dong-bin was to become the CEO of L Investment Co. The Tokyo-based company is the largest shareholder of Hotel Lotte, which is the de facto holding company of the Lotte Group in Korea. It owns a 72 percent stake in the hotel. The actual owner of L Investment is Lotte Holdings as it owns a 100 percent stake of the investment company.

Taking full dominance of Lotte Holdings in Japan allows Dong-bin complete control over the retail giant’s affiliates both in Korea and Japan, opening the opportunity of realizing “one Lotte.”

Additionally the CEO of Lotte Holdings secures two-thirds of friendly shares including employees shares, blocking any possible hostile attack by Lotte Group founder Shin Kyuk-ho and older brother Dong-joo.

Shin was approved as CEO of Lotte Holdings on July 15. Although Dong-joo attempted to fire his younger brother from the CEO position on July 27, the younger brother was been already working on solidifying his position within the retail giant, combining the management in both countries over the last seven months.

The pledge of support to the younger brother by the 37 CEOs of Lotte affiliates on Aug. 4, was actually set in place long ago, according to people who have knowledge of the issue.

Dong-bin announced the following day he would be the CEO of Lotte Holdings at an emergency CEO meeting in Korea. He told executives he would be taking control of management both in Korea and Japan and asked that they support him.

“As all the legal process have been well organized, even if some incident occurs, don’t mind and give your assistance,” Dong-bin reportedly told his executives.

“After Chairman Shin left, the CEOs started to discuss actions that we could do to show our support,” said a Lotte affiliate CEO, who attended the meeting but requested anonymity. “We all signed on an A4 paper showing our support.”

But industry insiders say the younger brother started to act upon the unification of the two Lottes after his older brother was forced to step aside from management.

It is believed the biggest reason Dong-joo was forced to step down from major positions within the retail group was largely due to business failures.

Dong-joo invested roughly 800 million yen or 7.6 billion won ($6.4 million) in the second half of last year, on a start-up company that was an affiliate of Panasonic. The start-up specialized in inventory management. Dong-joo was said to have suffered huge losses from the investment. Also, although the exact figure has never been disclosed, the older brother was said to have made huge losses as well on overseas investments.

According to a high-ranking executive at Lotte Group, Dong-bin would often comment in public that if
businesses in Japan struggled it will have a heavy impact on Korean
business.

The younger brother left for Japan on Thursday to take part in the shareholders meeting.

BY LEE SO-AH [lee.hojeong@joongang.co.kr]