161.7 Bil. Won Invested in Showa Denko
Lotte Chemical has invested 161.7 billion won to acquire a 4.46 percent stake in Japanese chemical company Showa Denko.
The move is seen as reflecting Lotte Group chairman Shin Dong-bin's intention to take over Japanese chemical companies with strong technologies.
Lotte Chemical bought Showa Denko shares in March and April. Showa Denko is a medium-sized chemical company with strengths in high value-added materials such as semiconductor materials. In 2019, it defeated Lotte Chemical in acquiring Hitachi Chemical, a subsidiary of Hitachi Ltd. which has battery cathode material technology.
Lotte chairman Shin said in an interview with the Nihon Keizai Shimbun in March, "There are many Japanese companies that cannot develop global businesses with their excellent technologies.”
Lotte Chemical said in a conference call for its first quarter earnings announcement that it may consider acquiring companies to optimize its business portfolio. Its targets include not only companies with specialty products but also those with profitable general-purpose products.
Chairman Shin called for bold investments in new businesses in the post-COVID-19 era at a meeting of Lotte Holdings executives on May 19. He reportedly met with business leaders in Japan to discuss global economic situations and ponder on the group's strategy in the post-COVID-19 era.
Lotte Chemical has strengths in general-purpose products but is in need to strengthen its specialty product groups. The company posted 86 billion won in operating loss in the first quarter of 2020, the first quarterly loss in eight years. In particular, it suffered 11.7 billion won in operating loss in the olefin business and 40.7 billion won in operating loss in the aromatics business. On the other hand, the company posted 41 billion won in operating profit in the high-tech material business. Lotte Fine Chemical also contributed 51 billion won in operating profit.
Lotte Chemical's cashable assets, which will be financial sources for investment, are abundant at 3,770.6 billion won. Its debt ratio is also only 43.4 percent. "As COVID-19 has increased uncertainties, diverse companies could come up for sale in the M&A market," a Lotte Chemical official said. "We will consider taking M&A chances with various options based on our solid cash flow."