Transforming to Holding Company System: Lotte Group Removes Cross-shareholding Structure through Additional Mergers | BusinessKorea

Monday, January 22, 2018

Lotte Group will be able to stabilize its holding company system, with the additional mergers of Lotte GRS, Fujifilm Korea, Lotte Logistics, Lotte International, Daehong Communications and Lotte IT Tech.
Lotte Group will be able to stabilize its holding company system, with the additional mergers of Lotte GRS, Fujifilm Korea, Lotte Logistics, Lotte International, Daehong Communications and Lotte IT Tech.
Seoul, Korea
3 January 2018 - 10:15am
Yoon Yung Sil

Lotte Group has completely removed its cross-shareholding relations, whose number once reached 750,000, in three years. As Chairman Shin Dong-bin was handed a suspended prison sentence, the group is also accelerating the stabilization of its holding company system.

According to Lotte Group on January 2, Lotte Holdings, Lotte GRS, Fujifilm Korea, Lotte Logistics, Lotte International, Daehong Communications and Lotte IT Tech held a board meeting, respectively, on January 2 and agreed to integrate six unlisted investment units, including Lotte International, into Lotte Holdings through merger or merger after divestiture.

Lotte Group had a total of 748,963 cross-shareholding relations until June 2014 but has reduced the figure since then. After Chairman Shin first announced his plan to get rid of the cross-shareholding structure in 2015 in order to make its governance structure transparent, the number of cross-shareholding relations decreased to 67 that year. The figure fell to 13 as Lotte Holdings was launched in October last year. Moreover, it dropped even further to 11 when Lotte group removed the cross-shareholding relations between Lotte Holdings and Lotte Chilsung Beverage and Lotte Holdings and Lotte Food at the end of last year. With the latest merger, all the cross-shareholding and mutual investment relations are eliminated. 

Since Lotte Group did away with its cross-shareholding structure, it is expected to seek an additional reorganization in its bid to stabilize the holding company system. First of all, the group will speed up an initial public offering (IPO) of Hotel Lotte. Lotte Group was planning to list Hotel Lotte last year, but postponed the plan as Hotel Lotte saw its performance get worse due to China’s retaliation over the deployment of the U.S. Terminal High Altitude Area Defense (THAAD) missile system. The company hasn’t been completely normalized yet. However, it is expected to go public by the end of the year as it hit the bottom.

Lotte Group also needs to sell its financial affiliates such as Lotte Insurance and Lotte Card.

Lotteria, Daehong Communications, Lotte International, Fujifilm Korea sold their stake in Lotte Capital and Lotte Insurance to Hotel Lotte and Lotte Hotel Busan in a block deal on December 28. This is to prevent Lotte Holdings from owning the stocks of the group’s financial companies through the merger.

However, it is not urgent because there is still time as the group should sell its financial affiliates in two years after the holding company was established. An official from the business industry said, “For Lotte Group, the most urgent priority is to strengthen Chairman Shin’s control by stabilizing the holding company system after he shunned the imprisonment. Hotel Lotte is also forecast to accelerate the IPO.”

With the additional merger, Lotte Holdings will be able to stabilize its holding company system, expand the control over its affiliates and improve transparency of the governance structure. In addition, it is expected to strengthen the abilities of investment and improve the efficiency of management by integrating investment functions into Lotte Holdings as well as make management of unlisted six companies more efficient by separating investment functions from business functions.

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