Prioritizing Financial Soundness
E-Land, South Korea’s apparel retail giant, announced on Sept. 2 that it sold Teenie Weenie to the Chinese fashion company V-GRASS for about 1 trillion won (US$869 million). The business group also announced it scrapped the plan to sell the big-box-store chain Kim’s Club.
Lee Kyun-jin, chief director in charge of M&As, said at a press conference held at Kensington Hotel in Yeouido on Sept. 2 said, “We’ve decided not to sell Kim’s Club.”
As the news to put Kim’s Club for sale failed to draw much interest from either retailers or financial investors, there have been doubts about a dramatic improvement of Eland’s current financial health derived from the sale of Kim’s Club.
Moreover, given the sluggish domestic consumption, it seems that Eland has wound up the planned sales of Kim’s Club and put an end to the year-long negotiations with a U.S.-based private equity giant Kohlberg Kravis Roberts (KKR) over the sale price of Kim’s Club.
In June this year, E-Land and KKR signed a binding memorandum of understanding (MOU) with a plan to sign a final contract shortly after they discuss the terms of sale. However, it has been known that two parties had difficulties in narrowing the differences on the sale price.
Officials at E-Land explained that as KKR’s conditions didn’t match E-Land’s, the company decided not to sell Kim’s Club to KKR.
As for the binding MOU, Lee said, “Scrapping the sales of Kim’s Club doesn’t overly disrupt the detailed conditions of the MOU,” adding, “Despite the best efforts of the two parties, both Eland and KKR couldn’t find a common ground.”
In the meantime, E-Land said it expects that in addition to the sale of Teenie Weenie, the likely sales of two plots of real estate in western Seoul and a commercial property in Gangnam area would help reduce the company’s debt-to-equity ratio to about 200 percent.
E-Land made an announcement of its intention to sell Teenie Weenie May this year through the sale underwriter, China International Finance Corporation (CICC).
In the transaction made on Sept 1, E-Land sold to V Grass the entire stake in Teenie Weenie’s Chinese subsidiary for 985.5 billion won (US$ 899 million).
Through the transaction, V Grass will acquire business rights in China, global trademark rights of Teenie Weenie, the Chinese Teenie Weenie design rights and sales personnel belonging to the Teenie Weenie outlets in China.
Launched in 2004 in China, Teenie Weenie, a womenswear brand affiliated with E-Land International Fashion Shanghai Co., successfully appealed to a wide range of age groups and as of today it has opened 1,200 outlets in China. Last year, the fashion brand raked in 421.8 billion won (US$380.57 million) in the sales and 112 billion won (US$ 101 million) in the operating profit in China.
Eland originally proposed 1.3 trillion won (US$ 1.1 billion) for the sale price but the company said it compromised its stance by cutting the price to 1 trillion for a quick sale.
Lee said, “Eland has concluded the negotiations in the line of both creating synergy and measuring up to the market expectations ,” adding, “taking more time may help the negotiation tilt in favor of the company’s original stance, but we chose to speed up the process to promptly improve financial structure of the company.”
E-Land said the company plans to complete transactions related to the sale of Teenie Weenie by the end of this year.
In addition, Eland said it has no plan for additional large-scale M&As. The company also mentioned that it put on hold the entry into the duty-free business
Shin Dong-gi, CFO of Eland, said that the company originally planned to enter the duty-free business; however, this plan takes a backseat to improving company’s financial structure for the time being. He added that the real estate where the company initially planned to open a duty-free store is currently put up for sale and the company is reviewing the entire strategy of expanding into the duty-free business.