Retail and food conglomerate Lotte Group plans to divide four key businesses valued at about $12 billion into operating and holding units, slashing the number of cross-shareholdings to 18 from 67 and allowing its chairman to tighten his grip on a hotels-to-retail conglomerate rocked by a years-long family feud and a corruption trial.
Lotte Confectionery Co. will absorb the investment companies created when the South Korean group’s shopping, food and beverage units are each split into operating and holding companies under a plan to be presented for shareholder approval on 29 August, Lotte Group said in a statement.
The confectionery unit’s investment company would then merge the holding companies into a single entity, according to the filing.
The single-holding company structure and fewer cross-shareholdings could give more clout to Shin Dong-bin, the 62-year-old chairman and younger son of the founder, by making it harder for his elder brother and rival, Shin Dong-joo, to win over enough shareholders to gain control. Lotte has faced criticism from the government for a proliferation of cross-shareholdings that allowed family members to exert excessive control relative to the number of shares they owned.
“First of all, this move is to dispel concerns over the family disputes over management rights, and to strengthen the chairman’s control of the group,” Park Ju-gun, president of Seoul-based corporate watchdog CEOScore, said before the plan was formally announced.
Trading in shares of Lotte Confectionery and the three other units – Lotte Shopping Co., Lotte Food Co. and Lotte Chilsung Beverage Co. – was halted before the restructuring plan was announced.
Shin Dong-bin plans to buy a 3.27% stake in Lotte Confectionery, MoneyToday reported on 25 April, citing industry officials whom it didn’t identify. The chairman already owned 9.1% of the ice cream-, candy- and gum-maker, the largest stake held by an individual, according to data compiled by Bloomberg.
The Shin sibling rivalry isn’t Lotte’s only challenge. With almost twice the revenue of Coca-Cola, Inc., Lotte Group has seen its operations in China suffer from economic retaliation after the company allowed US anti-missile batteries to be deployed on land that it provided in South Korea. Shin Dong-bin is also among Lotte executives who have been indicted on corruption charges.
In 2015, Shin Dong-bin prevailed in a coup attempt by his older brother and their father. The plan backfired, as the father, who was then chairman, got sidelined to an honorary position and the eldest son was stripped of group positions. Shin Dong-joo, 63, has since attempted multiple challenges to his younger brother’s authority, but to little avail.
In spite of the indictments, the family feud, and pressure from China, investors have been sticking with the chaebol. Over the past two weeks, shares of Lotte’s listed affiliates had climbed about 15%, adding about $1.6 billion to the group’s market value.
A reorganisation could also unlock value and pave the way for an initial public offering of Hotel Lotte Co., a move that was delayed after prosecutors began an investigation of the company in June 2016. The hotel-unit IPO is likely to take place in 2019, the Lotte official said on 24 March.
“A simpler governance structure would also help attract global investors to Lotte, which would be the main agenda under Shin Dong-bin’s leadership,” CEOScore’s Park said.
News by Bloomberg, edited by ESM. To subscribe to ESM: The European Supermarket Magazine, click here.
