Lotte Group Decides to Convert Itself into a Holding Company

Aug 30, 2017

Lotte Group opened a ‘generation of Shin Dong-bin’ by deciding to convert itself into a holding company. It is going to establish ‘Lotte Holding Corporation’ by dividing and merging investment sectors of four listed subsidiaries with Lotte Confectionery Co., Ltd. at the center. While simplifying management structure that has been tangled, Lotte Group is also going to increase transparency of its management by cutting off circular ownership cycles as soon as possible.
Lotte Group held a temporary general meeting of shareholders per Lotte Shopping Co., Ltd., Lotte Confectionery Co., Ltd., Lotte Chilsung Beverage Co., Ltd., and Lotte Food Co., Ltd. and passed an item that will approve corporate division and division-merger for converting itself into a holding company.
69.4% of shareholders of Lotte Confectionery Co., Ltd. attended this general meeting and 87.9% of them approved this item. 82.4% of Lotte Shopping Co., Ltd.’s issued stocks attended this meeting. It passed this item as 82.2% of attended stocks and 63.3% of issued stocks approved this item. Chairman Shin Dong-bin entrusted his shareholder right in writing and approved this item. Lotte Chilsung Beverage Co., Ltd. and Lotte Food Co., Ltd. also passed this item as 88.6% and 96% of their respective shareholders approved this item.
Through this voting, Lotte Group is going to carry out a spin-off on four listed subsidiaries into individual investment and business sector. In this coming October, Lotte Confectionery Co., Ltd.’s investment sector is going to merge investment sectors of Lotte Shopping Co., Ltd., Lotte Chilsung Beverage Co., Ltd., and Lotte Food Co., Ltd. and form ‘Lotte Holding Corporation’. Ratio of division-merger is going to be 1(Lotte Confectionery Co., Ltd.):1.14 (Lotte Shopping Co., Ltd.): 8.23 (Lotte Chilsung Beverage Co., Ltd.):1.78 (Lotte Food Co., Ltd.).
Lotte Holding will be in charge of evaluations on management of Lotte’s subsidiaries, business support, and brand license management. It is expected that it will become a powerful holding company that will have at most 50% of shares of Lotte Confectionery Co., Ltd., Lotte Chilsung Beverage Co., Ltd., Lotte Shopping Co., Ltd., and Lotte Food Co., Ltd. It is heard that Chairman Shin Dong-bin and President Hwang Gak-kyu will be the first co-presidents of Lotte Holding.
Chairman Shin Dong-bin is going to have more controls over subsidiaries as Lotte is converting into a holding company. Currently Chairman Shin Dong-bin has 13.46% of shares of Lotte Shopping Co., Ltd., 9.07% of shares of Lotte Confectionery Co., Ltd., 5.71% of shares of Lotte Chilsung Beverage Co., Ltd., and 2.0% of shares of Lotte Food Co., Ltd. It is heard that Chairman Shin Dong-bin and former Vice-Chairman Shin Dong-joo will have 10.56% and 5.73% of shares of Lotte Holding Company respectively. It is likely that Chairman Shin Dong-bin is going to solidify his controls over subsidiaries through re-merger and listings.

Lotte Group Decides to Convert Itself into a Holding Company

Lotte has been cutting off number of circular ownership cycles sequentially and lowered the number from 416 in 2015 to 67 this year. Number of circular ownership cycles will further be reduced to 18 through this voting which will allow Lotte to simplify its management structure and to build transparency of its management.
It is expected that Lotte will be able to secure management stability by separating risks from businesses and investments and prevent parent company’s series of bad managements that occur due to bad management from its subsidiaries. It is likely that management systems per subsidiaries and sectors will become much stronger.
Lotte still needs to break up connections with other subsidiaries such as Hotel Lotte Co., Ltd. and others that are outside of Lotte Holding Company. Currently 11 Japanese investment companies (L1 to L12 excluding L3) have 72.65% of shares of Hotel Lotte Co., Ltd. Lotte Holdings and Kwang Yoon Sa have 19.07% and 5.45% of shares of Hotel Lotte Co., Ltd.
Initially Chairman Shin Dong-bin was planning to improve Lotte’s management structure by increasing percentage of normal shareholders through listing of Hotel Lotte Co., Ltd. and diluting shares that Japanese holding companies have of Hotel Lotte Co., Ltd. However he missed an opportunity to list Hotel Lotte Co., Ltd. due to continuous aftereffects from investigations from South Korean prosecution in 2016 and frictions with Chinese Government regarding THAAD (Terminal High Altitude Area Defense).
Before converting clearly into a holding company system, Lotte is going to continue to push for listing of Hotel Lotte Co., Ltd. and unification with Lotte Holding Company.
“Trials with Chairman Shin Dong-bin and investigations from South Korean prosecution are taking place right now.” said a representative for Lotte Group. “We are planning to push for listing of Hotel Lotte Co., Ltd. according to an original procedure when all of these external factors are taken care of.”
As Lotte Group is converting to a holding company system, Chairman Shin Dong-bin’s control has become much more solidified. However this might cause oppositions from former Vice-Chairman Shin Dong-joo, who has been having conflict of management rights with Chairman Shin Dong-bin, of Lotte Holdings to grow more intense.
Staff Reporter Yoon, Heeseok | pioneer@etnews.com

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