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Lotte looks to move past family feud with restructuring plan

Wednesday, April 26, 2017 - 10:19

[SEOUL] Lotte Group is poised to unveil a reorganisation of four businesses valued at about US$12 billion, a move that would allow its chairman to tighten his grip on the hotels-to-retail conglomerate rocked by a years-long family feud and a corruption trial.

The boards of Lotte's shopping, confectionery, food and beverage units are to meet in Seoul on Wednesday to vote on the overhaul, Lotte said in a text message. The four publicly traded firms will likely be separated into investment assets and operating companies, with the non-operating company holdings eventually coming under a single entity, a Lotte Group official said last month.

The single holding company structure could give more clout to Shin Dong-bin, the 62-year-old chairman and younger son of the founder, by making it harder for his elder brother and rival, Shin Dong-joo, to win over enough shareholders to gain control. The move would also help unravel cross-shareholdings between group businesses that have come under criticism by the government for allowing family members to exert excessive control relative to the number of shares they own.

"First of all, this move is to dispel concerns over the family disputes over management rights and to strengthen the chairman's control of the group," said Park Ju-gun, president of Seoul-based corporate watchdog CEOScore.

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The Shin sibling rivalry isn't Lotte's only challenge. With almost twice the revenue of Coca Cola Inc, Lotte Group has seen its operations in China suffer from economic retaliation after the company allowed US anti-missile batteries to be deployed on land it provided in South Korea. Shin Dong-bin is also among Lotte executives who have been indicted on corruption charges.

In 2015, Shin Dong-bin prevailed in a coup attempt by his older brother and their father. The plan backfired as the father, who was then chairman, got sidelined to an honorary position and the eldest son was stripped of group positions. Shin Dong-joo, 63, has since attempted multiple challenges to his younger brother's authority, but to little avail.

The boards of Lotte Shopping Co, Lotte Confectionery Co, Lotte Chilsung Beverage Co and Lotte Food Co will announce the results of Wednesday's meetings in regulatory filings, Lotte said.

In spite of the indictments, family feud and pressure from China, investors appear to be sticking with the chaebol. Over the past two weeks, shares of Lotte's listed affiliates have climbed about 15 per cent, adding about US$1.6 billion to the group's market value.

Lotte Shopping Co shares, in particular, have gained on speculation the unit could become the centre of a holding company for assets from other affiliates, said Nam Ok-jin, an analyst at Samsung Securities Co.

A reorganisation could also unlock value and pave the way for an initial public offering of Hotel Lotte Co, a move that was delayed after prosecutors began an investigation of the company in June 2016. The hotel unit IPO is likely to take place in 2019, the Lotte official said March 24.

"A simpler governance structure would also help attract global investors to Lotte, which would be the main agenda under Shin Dong-bin's leadership," CEOScore's Mr Park said.

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