Korean business groups, including Lotte, CJ and Doosan, are expected to put their affiliates on the M&A market this year as part of their restructuring campaign or efforts to change their business portfolios.
The investment banking (IB) industry is paying attention to large business groups undergoing financial difficulties or facing limits to growth in their main business sectors.
A good example is CJ Group which declared emergency management in October 2019. CJ had received excellent credit ratings based on stable cash flows, but its debt burden increased sharply after a series of acquisitions, including purchasing a 70 percent stake in U.S. frozen food processor Schwan’s for 1.9 trillion won in February 2019. CJ Group's total net borrowings amounted to 13 trillion won (about US$1.1 billion) in the first half of 2019, pushing up its half-year financial cost to 508 billion won.
Lotte Group's retail business is also unstable. The group reportedly considered merging Lotte Mart and Lotte Super as their performance kept deteriorating. Experts say that Lotte Group is likely to sell financial affiliates and list Lotte Hotel to raise funds for large-scale M&As.
Doosan Group is also attracting attention as it took the bold step of delisting Doosan Engineering & Construction at the end of last year. Global investment banks, major Korean securities firms, and accounting firms have reportedly advised the group’s top management to sell off additional affiliates. The group has withdrawn from the duty-free shop business, and market watchers forecast that it may additionally sell off assets such as Doosan Tower.
Apart from the manufacturing sector, the financial market is also expected to see a sea change. Private equity funds (PEF) management firms generally had been reluctant to acquire tightly regulated Korean financial firms, but the mood changed as MBK Partners succeeded in selling off Orange Life.
A preliminary tender will begin for Prudential Life this month, which is valued at more than one trillion won (about US$862 billion). KDB Life Insurance and The-K Non-life Insurance are also up for sale. MG Insurance and Tong Yang Life Insurance are also regarded as potential offerings. Woori Financial Group is expected to make its presence felt in the M&A market as it is seeking to acquire securities and insurance firms. Daewoo E&C, owned by Korea Development Bank (KDB), is also an attractive offering in 2020.