December 04, 2024

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CJ CheilJedang headquarters in central Seoul (CJ CheilJedang)

South Korean food giant CJ CheilJedang has reportedly decided to sell its industry-leading bio division, which had been a key pillar alongside its food business, signaling a shift in its strategic growth priorities.

According to investment banking sources Tuesday, CJ CheilJedang is believed to have appointed Morgan Stanley as the lead manager for the sale and is engaging with potential buyers. The main auction is expected to take place as early as next month, with the division estimated to value at over 6 trillion won ($4.5 billion).

The bio division focuses primarily on its green bio unit, using microorganisms to produce food seasoning materials and feed-grade amino acids. It holds the top global market share in feed-grade amino acids such as lysine and tryptophan.

Last year, the division generated 4.13 trillion won in revenue, accounting for 23 percent of CJ CheilJedang's total revenue, and contributed 30 percent of the company's operating profit. As of the third quarter this year, it reported cumulative sales of 3.19 trillion won and an operating profit of 279.2 billion won.

Although less recognized by the general public than popular CJ CheilJedang brands Bibigo and Hetbahn, the bio division has been a cornerstone of the company’s growth as a global food and beverage powerhouse. Its origins trace back to the monosodium glutamate product "Mipung," launched in 1963, with technology transferred from Japan's food company Ajinomoto. In 1988, the company expanded into the lysine market by establishing a production base in Indonesia, marking a significant turning point.

But the division's earnings have been volatile, influenced by raw material prices and livestock demand cycles. Additionally, key products like lysine and tryptophan have relatively low entry barriers, impacting their long-term growth prospects.

As private equity firms are anticipated to show interest in the acquisition, analysts see the sale as an opportunity to enhance the company's value.

"The business is traditionally known to be highly volatile due to market fluctuations. During the Trump administration's first term, the chemical industry, which primarily built its supply chain around China, faced difficulties due to Trump’s high tariff policies," an analyst from a local investment bank here, said. "With the start of the second Trump administration, such potential risks can be mitigated, making CJ CheilJedang focus more on its strengths in the food industry."

The sale will primarily involve segments including feed-grade amino acids, and features 11 major production facilities in key markets such as the US, China, Indonesia and Brazil.

The remaining white bio, which focuses on biodegradable plastics and eco-friendly materials, and red bio, which involves antibody therapeutics and new drugs, segments will be retained and developed as future growth engines.

The food industry also perceives this move as a strategy to expand the Korean food business internationally, aligning with CJ Group Chairman Lee Jae-hyun’s “select and focus” strategy.

"Ultimately, it seems like a strategic decision to prioritize the global K-food business of CJ CheilJedang," an official from a major food company, said. "After acquiring Schwan’s in the US, they clearly placed significant emphasis on K-food products like frozen mandu and gimbap. It appears they have laid the groundwork for discovering high-profit future businesses in this area."

CJ CheilJedang previously sold its healthcare division, CJ Healthcare, for 1.3 trillion won in 2018, and used 2.1 trillion won to acquire Schwan’s, the second-largest frozen food company in the US, in 2019. The acquisition propelled CJ CheilJedang’s US food sales from 364.9 billion won in 2018 to 4.38 trillion won last year.

By Kim Hae-yeon (hykim@heraldcorp.com)