As Lotte Card and Lotte Insurance are officially put up for sale, attention is focusing on who will take over the two Lotte Group units.
Market analysts say the most likely candidates to acquire the two companies are financial groups that are familiar with the credit card and insurance businesses. Non-financial companies are likely to have difficulties in operating them as the business conditions surrounding the credit card and insurance industries are not favorable.
Lotte Card has a large number of customers from Lotte Group’s distribution units such as Lotte Department Store and Lotte Mart.
In Korea, credit card companies are largely divided into bank-affiliated players (Shinhan, KB Kookmin, Hana and Woori) and industrial group-affiliated ones (Samsung, Hyundai and Lotte Card). Among them, Lotte Card is affiliated with a distribution group so its members do not overlap much with those of other card companies.
In particular, if a bank-based credit card company takes over Lotte Card, its market share is highly likely to expand due to the increasing number of new customers.
However, Lotte Card’s value may fall if Lotte Holdings does not promise an explicit or implicit partnership between Lotte Card and Lotte Group when it sells the card unit.
In case of LG Card, the LG Group has maintained business relations with LG Card even after selling the card company to the Shinhan Financial Group.
In this regard, compatibility with L Point is also a key issue. If Lotte Card customers cannot use their L points as they do now after the sale of the card company to a third party, the quality of its partnership with Lotte Group could be diminished.
Market analysts consider the Woori Financial Group and KB Financial Group as the candidates to acquire Lotte Card.
If Woori changes into a holding company early next year, it needs to strengthen its non-bank affiliates. As of now, Woori Bank's share of the Woori Financial Group is 99 percent.
Woori Card's relatively low status compared with other credit card companies is another reason the Woori Financial Group is interested in acquiring Lotte Card.
KB Financial is always mentioned as an M&A player because of its abundant capacity to mobilize funds.
The group has also a reason to expand its size as the Shinhan Financial Group is set to surpass it in terms of assets and net income by acquiring Orange Life.
Also, if the KB Financial Group takes over Lotte Card, KB Kookmin Card will be ranked first in the card industry.
Woori is also considered a buyer of Lotte Insurance. The Hana Financial Group, which has only a life insurance company and no non-life insurance unit, is also a candidate.
However, some analysts are skeptical whether they will actually take over Lotte Insurance as the company is small in size and depends on Lotte affiliates in terms of sales.
Last year, Lotte Insurance recorded 579.3 billion won in sales. Its market share has been around 3 percent for more than 10 years since it became a Lotte Group unit in 2008.
The Woori and Hana Financial Groups established life insurance companies jointly with multinational financial groups such as Aviva and HSBC, respectively, but they failed to produce significant results due to their limited operating capabilities.
There is a possibility that foreign capital or private equity funds could attempt to acquire Lotte Insurance.