December 21, 2024

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[THE INVESTOR] Retail giant Lotte officially launched its new holding company Sunday, changing its governance system to strengthen Chairman Shin Dong-bin‘s control of the group and simplify its web of complex cross-holdings.

The plan to create Lotte Corporation, the holding company, was announced in April by the group and approved by shareholders in late August. Touted as a part of Chairman Shin’s moves to increase management transparency at the group, the holding company merged the investment entities of four Lotte affiliates -- Lotte Confectionery, Lotte Shopping, Lotte Chilsung Beverage and Lotte Food.

Lotte chairman Shin Dong-bin

According to a disclosure filed Saturday, the holding company will be headed up by co-presidents Shin Dong-bin and Hwang Gak-kyu, the head of Lotte‘s management innovation office. The full board will be confirmed at the first board meeting, expected to come in mid-October directly after the Chuseok holiday.

“This (holding) company will be tasked with business management evaluation and support and brand license management to increase Lotte’s company value,” the group said in a statement.

Trading on the four affiliates will resume on Oct. 30. The value of the holding company is estimated to be between 4 trillion ($3.5 billion) and 5 trillion won by market analysts such as OJ Nam of Samsung Securities.

Originally, Lotte Group had announced that the holding company would reduce circular holdings within the conglomerate from 67 to 18. However, that number fell to 13 once Lotte Engineering & Construction sold its 300,000 shares in Lotte Shopping in a block deal on Sept. 14.

Reducing cross-shareholdings through Lotte Corp. strengthens Shin‘s hold on the group. Industry analysts put Shin’s stake in Lotte Corp. at just above 10 percent, with that number expected to rise as affiliates continue to sell and buy shares to reduce cross-holdings. With a firm grip on the holding company, Shin is to be better able to steer the group through direct management and reduce the influence of Japanese stakeholders over Lotte‘s Korean businesses.

The change comes as Shin continues to face power challenges from his elder brother, former Vice Chairman Shin Dong-joo.

On Sept. 12, Shin Dong-joo’s representatives announced that the elder Shin would be using his appraisal rights to unload 97 percent of his stake in the four affiliates forming Lotte Corporation. The transaction was estimated to be worth about 700 billion won.

Market analysts such as Yoon Tae-ho of Korea Investment & Securities say that Shin Dong-joo may use his newly raised funds to buy up shares of the holding company in order to challenge Shin Dong-bin‘s leadership.

“The smaller market capitalization of the holding company (compared to that of the four affiliates) makes it easier to buy, while offering more control over the group,” Yoon said.

The success of the holding company in raising the stock prices of the four affiliates is key for Lotte’s future plans to list other major companies including Hotel Lotte, which has acted as the de facto holding group of the group‘s Korean operations.

“Lotte, which is preparing large-scale listings of its affiliates, needs to bring in investors from Korea and abroad. It is important for Lotte Corporation and the four affiliates’ operations units to create a good track record,” said Yoon. 

By Won Ho-jung / The Korea Herald (hjwon@heraldcorp.com)