Lotte makes move to simplify structure

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Lotte makes move to simplify structure

Lotte Group took its first official step to resolve its complex cross-shareholding corporate structure, which has long been condemned for enabling the owning family, including Chairman Shin Dong-bin, to carry out improper business activities.

It split four of its retail-related affiliates - Lotte Shopping, Lotte Confectionery, Lotte Food and Lotte Chilsung Beverage - into an investment and a business unit at the board meeting simultaneously held on Wednesday.

The board agreed to then merge the four investment units to form a single holdings company that will have a control of four business arms.

Lotte Confectionery, the founding company of the 50-year-old Lotte Group, will play a central role in the holdings company by absorbing three investment units from Lotte Shopping, Lotte Food and Lotte Chilsung Beverage.

The holdings company, which is yet to have an official English title, will be in charge of assessing management of its subsidiaries and managing diverse brand licenses. Its office will be located in Lotte World Tower in southern Seoul.

Lotte Group Chairman Shin has been pushing for a group structure realignment since 2015, when the cross-shareholding structure of the group came under fire for having lead to a nasty family feud between Shin and his estranged older brother, Shin Dong-joo. Shin again promised last October to achieve a transparent management practice after his company faced one of the nation’s biggest prosecution investigations in June due to allegations of embezzlement and breach of trust that amounted to 170 billion won ($150.7 million).

There were a total of 416 cross-shareholding cases in 2015, but this number has been reduced to 67.

The latest spin-off move is expected to reduce the number further down to 18.

Lotte Shopping, the biggest retail affiliate, which has a market value of 8 trillion won, is alone associated with 63 cross-shareholding cases.

“The shift towards becoming a holdings company is expected to simplify the complicated corporate structure,” said the company in a statement.

“It is expected to enhance the company’s transparency. The company value and shares value, which have been underestimated because of the opaque governance structure, are expected to get re-evaluated,” the company added.

This process is Lotte Group’s latest attempt to become a company completely managed by a single holdings company. Shin had been vying to do so by publicly listing Hotel Lotte, a de facto holdings company of Lotte’s Korean business, at the Korean bourse and make it into an official holdings company.

However, the plan was initially delayed due to a massive prosecution investigation launched in June, followed by another one regarding Shin lobbying former President Park Geun-hye and her friend, Choi Soon-sil, through various channels.

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