Bracing for Next 50 Years
Lotte Group, which mark the 50th anniversary of its foundation on April 3, is seeking to do merger and acquisition (M&A) based on ample funds of up to 10 trillion won (US$8.99 billion). In particular, the group plans to actively promote the non-distribution sector, such as petrochemical and construction, along with the strategy for next 50 years.
According to Lotte Group, the total consolidated cash reserves of six major affiliates – Lotte Shopping, Lotte Chemical, Lotte Confectionery, Lotte Chilsung Beverage, Lote Engineering & Construction and Hotel Lotte – were 5.94 trillion won (US$5.34 billion) as of the end of last year. Lotte Shopping had the most cash with 2.27 trillion won (US$2.04 billion), followed by Lotte Chemical with 2.2 trillion won (US$1.98 billion), Hotel Lotte with 513.4 billion won (US$461.4 million) and Lotte E&C with 468.3 billion won (US$420.87 million).
Industry sources expects that Lotte Group will actively push ahead with M&A using its ample internal funds of 6 trillion won (US$5.39 billion) as Chiarman Shin Dong-bin has always said. This is because Shin, who worked for Nomura Securities' London branch as an international finance and M&A expert for seven years, is willing to develop overseas markets more than anybody else does. In addition, he said during a recent interview with The Wall Street Journal, “It is better to invest in the growth opportunities of affiliates rather than spending money and energy on changing the group structure.”
Last year, Lotte Group gave up its bid to buy U.S.-based petrochemical company Axiall Corp. and Duty Free Americas due to the prosecution investigation. However, the group is expected to aggressively go ahead with M&A based on the non-distribution sector as it has cleared major internal and external obstacles this year. Notably, Lotte Chemical is highly likely to participate in mega M&A deals when combining its cash reserves, funds of 2 trillion to 3 trillion won (US$1.8 billion to 2.7 billion) to be secured from the initial public offering (IPO) of its Titan’s production site in Malaysia in the second half of this year and additional funds of 2 trillion won (US$1.8 billion) from corporate bond issuance. As Hotel Lotte has also made a profit after taking over The New York Palace Hotel for US$850 million (940 billion won) in 2015, it will reconsider buying hotels in Europe and North America which were continuously mentioned in the market from last year.
An official from the business industry said, “As Chairman Shin has an intention to promote Lotte Chemical as the group’s major affiliate that can replace the distribution sector in the future, Lotte Chemical will push ahead with numerous M&A deals along with Lotte Fine Chemical. With China risks in the distribution sector growing, Lotte Group is expected to expand its business areas to Southeast Asia, including Indonesia and Vietnam, which have been considered being relatively of little importance.”