Shareholders cry foul over Lotte Group’s merger plan

A group of individual shareholders in Lotte Group filed a petition opposing a merger plan between four affiliates on Monday, two weeks before shareholders are scheduled to vote on a major governance reform plan that includes the merger.

The group, mainly composed of shareholders from three smaller Lotte affiliates, is concerned about the participation of one affiliate in the merger, Lotte Shopping, which is still suffering from deficits in China. They filed a petition with the government’s National Pension Service opposing its merger with Lotte Chilsung Beverage, Lotte Confectionery and Lotte Foods.

The National Pension Service is a major institutional investor that has shares in Lotte Group companies, including 6 percent in Lotte Shopping.

In April, Lotte Group announced that each of the four affiliates would split into a holding and operating company. The holding companies would then be merged into one and fall under Lotte Confectionery, which the group has designated as its central holding company. The measure was part of Lotte’s initiative to resolve its complex cross-shareholding structure.

“The ongoing plan regarding the four companies is not for the sake of investors but part of the group’s scheme to share Lotte Shopping’s high business risk with shareholders of the other three,” said Lee Seong-ho, the leader of the shareholders’ group filing the complaint.

The shareholders’ group takes issue with the merger ratio that the four companies set in April. Merger ratios are decided by the corporate value of participating companies.

Their claim is that Lotte Shopping’s value does not reflect the future loss and risks from its remaining businesses in China.

“Apart from the 3 trillion won [$2.6 billion] loss from its Chinese operations that it made public in regulatory filings, future losses from the real estate projects and Lotte Shopping’s retail business were not reflected,” the group said in its petition.

The shareholders have proposed a merger involving only the three affiliates outside Lotte Shopping. They added that the transition to a holding structure using Lotte Shopping, where the group’s chairman, Shin Dong-bin, is a major stakeholder, was merely a strategy to help him strengthen ownership over other affiliates.

Their argument is identical to one that Shin’s estranged brother, Shin Dong-joo, made in July in opposition to the merger plan. The shareholders recently appointed Shin Dong-joo to be an adviser to the group, saying they had “coinciding interests.”

In response to the petition, a Lotte Group spokesman said the company was standing by its merger plan, saying it would help increase transparency at the conglomerate.

Lotte Group’s shareholders will meet on Aug. 29 to vote on the plan.

BY SONG KYOUNG-SON [song.kyoungson@joongang.co.kr]