Good-bye to Shin Dong Joo: Inauguration of Lotte’s Holding Company Puts End to Dispute over Management Right | BusinessKorea

Friday, January 19, 2018

Lotte Corporation was officially inaugurated as the holding company of Lotte Group on October 12.
Lotte Corporation was officially inaugurated as the holding company of Lotte Group on October 12.
12 October 2017 - 10:00pm
Michael Herh

October 2, Shin Dong-bin, chairman of Lotte Group, is going to his new office in Lotte World Tower in Jamsil, Songpa-gu, Seoul in order to go to work for the first time.

Lotte Corp. which merged the investment divisions of four listed companies centered on Lotte Confectionery Co., the parent company of Lotte Group, officially inaugurated on October 12. As a result, Lotte stands on a new starting line after laying the groundwork for a transition into a holding company structure to improve its complex corporate governance structure.

The Lotte Group split off four companies -– Lotte Confectionary Co., Lotte Shopping, Lotte Chilsung Beverage, and Lotte Food -- into investment and business entities and the investment division of Lotte Confectionary Co. absorbed the investment divisions of the three remaining investment division, giving birth to the holding company.

Lotte Corp. is a pure holding company that owns and manages subsidiaries' shares without any additional independent business. The holding company will play a role in management evaluation, business support and brand license management to enhance the corporate value of subsidiaries. From mid- to long-term perspectives, the holding company is planning to explore new business and promote M&As in order to build the business capabilities of the Group.

Lotte Corp.'s main revenue sources are dividends and brand commissions. The brand commissions are about 0.15% of sales of each company excluding advertising expenses.

At the beginning of its launch, the holding company’s assets were 6,357.6 billion won and its capital was 4,881.6 billion won. Under its wing are a total of 42 subsidiaries and when including overseas affiliates, the figure jumps to 138. The company plans to add 28 subsidiaries through tender offers, splits and mergers, and stake purchase among others.

"We will consider blue-chip subsidiaries as incorporation targets," said Lee Bong-chul, vice president of financial innovation at Lotte Corp. "In the case of eight financial subsidiaries, we have not yet decided whether or not to accept an intermediary financial holding firm so we will make a decision by checking situations."

Chairman Shin Dong-bin’s right to manage the Lotte Group has been further strengthened via the establishment of the holding company, putting an end to a management dispute over the Lotte Group. Chairman Shin's Lotte stake in Lotte Corp. is 13.0%. Adding equities of affiliates of the Lotte Group of Korea and equities friendly with chairman Shin, chairman Shin will be able to secure nearly half of equities in Lotte Corp. By contrast, Japanese Lotte Holdings' stake stands at 4.5%.

Shin Dong-ju, a former vice chairman of Lotte Holdings in Japan who sold most of his stakes in the four affiliates against the merger, holds a 0.3 percent stake.

However, Lotte Corp. still has two puzzles to solve –- listing Hotel Lotte which does not belong to the holding company structure and 99 percent equities of which belongs to affiliates of Lotte Japan and whether or not to incorporate financial subsidiaries. The Lotte Group, which had gone ahead with the listing of Hotel Lotte in 2016, scratched off its listing plan due to the prosecution’s investigation into the group in connection with the Choi Soon-sil scandal.


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