Lotte Shopping US$1.87 billion acquisition of Hi Mart
Adviser to acquirer: Goldman Sachs
Adviser to sellers: Citi
From a South Korea perspective 2012 may best be remembered for SK Telecom’s decision to take over control of Hynix Semiconductor from its creditors, directly buying a 20% stake in the company to do so.
But while SK Telecom says the acquisition will result in synergies, many analysts think it will cut few costs by owning the producer of the chips that its phones use. SK Telecom also boasted that it had wanted to enter the semiconductor business for years, leaving the impression that this was a vanity acquisition rather than one conducted for sound business reasons.
Add into this the capital-intensive nature of chip-making and its highly cyclical nature, and SK seems to have added a major financial uncertainty to its balance sheet.
Asiamoney feels that a far more sensible piece of M&A business took place in South Korea in 2012, namely Lotte Shopping’s acquisition of electronics retailer Hi Mart.
The acquisition took place after Lotte Shopping had entered a bidding war with private equity company MBK Partners for the retail electronics company. Lotte initially pulled out the process, effectively forcing Hi Mart to consider whether to proceed with MBK. It opted not to, deciding that Lotte Shopping was a more sensible fit.
The only question was whether Lotte Shopping would return to the table. And sure enough, mere days after the exclusivity period for discussions with MBK lapsed Lotte Shopping was back with an improved price that Hi Mart was happy to accept.
For a start genuine synergies exist. Lotte boasts strengths with many consumer products but retail electronics is not its most robust business, with the company possessing a market share in the single digits. Hi Mart in contrast possesses a 35% market share, which Lotte can take advantage of. Meanwhile Hi Mart gained the support of a consumer giant with deep pockets.
The acquisition was not entirely positive, with Moody’s cutting its rating on Lotte as a result. But even the agency said that "the synergies from consolidating Hi-mart could be significant over the longer term”, provided Lotte can use Hi Mart’s sourcing capabilities to improve its electronics retail business.
Lotte Shopping is now selling products through its department and retail stores along with Hi Mart’s outlets. It is also looking to use Hi Mart’s expertise to expand overseas, into emerging countries like Vietnam and Indonesia. The potential of its acquisition look far superior to the questionable link-up of SK Telecom and Hynix.
Other notable deals included Export-Import Bank of Korea’s US$2.25 billion bond issue, which is the largest deal from a non-sovereign borrower in Korea. But Kexim is a well-known and frequent borrower. For its potential impact on a business, Lotte Shopping’s acquisition looks more consequential.