MBK Partners, the country’s largest private equity fund (PEF), has been selected as the preferred bidder for Hi-Mart ahead of retail giant Lotte Group.
But analysts say it would have been better for the country’s largest electronics retailer to be acquired by Lotte because the marriage would create much-needed synergy for both retail-oriented entities.
They say Hi-Mart will likely be put up for sale again three to five years later after undergoing stringent restructuring, given that PEFs normally attempt to purchase undervalued companies and restructure them to boost their corporate value before selling them at a higher price.
Hi-Mart said Monday that Eugene Group and other majority shareholders signed a memorandum of understanding with MBK to sell a combined 65.25-percent stake to the PEF.
“Both sides will soon hold a series of negotiations to finalize the sales price and other terms. We expect to sign the securities purchase agreement with MBK in the near future,’’ the company said.
Last week, Lotte and MBK submitted bids for Hi-Mart, while the other two contenders, Shinsegae and SK Networks, decided not to follow up on the initial inquiries.
Lotte, one of Korea’s largest department store and discount store chain operators, sought to take over Hi-Mart to secure the latter’s extensive sales network and create synergy with its subsidiaries.
MBK, which has taken over a number of financial and media firms over the years, looks to establish a presence in the home appliance industry.
According to investment banking industry officials familiar with the deal, MBK offered to buy Hi-Mart at about 80,000 won per share, while Lotte wanted to pay less than that. At 80,000 won per share, MBK will have to pay about 1.25 trillion won for the 65.25-percent stake.
It is widely expected to raise the necessary funds from pension funds and life insurance firms. The company will then normalize operations at Hi-Mart, which has been hit with a series of irregularities involving its chairman and majority shareholders, and raise its corporate value through restructuring.
“Many analysts had initially expected that Lotte Group would acquire Hi-Mart. In that case, it would have been much better for the electronics retailer because the firm could benefit from Lotte Group’s extensive retail businesses,’’ Samsung Securities analyst Nam Ok-jin said.
Nam said the deal will be completed in the near future and projected that MBK will likely seek financial investors or retail firms as a strategic partner to jointly acquire and manage Hi-Mart.
“MBK’s acquisition is not the best scenario for Hi-Mart. But it is still better than nothing. Some analysts, including myself, had feared the sale might flounder amid the prolonged domestic market slump,’’ the analyst said.
Hi-Mart has been struggling since November when its former chairman Sun Jong-koo was indicted on charges of embezzlement and breach of trust. Following the incident, Eugene Group attempted to strip Sun of the chairmanship, sparking an internal feud over the control of Hi-Mart.
“I think MBK will implement restructuring programs to overhaul Hi-Mart over the next few years to boost its share price. The company will then likely be sold to Lotte and other retailers. It is just unfortunate for local retailers because they threw away a good opportunity to acquire the firm cheaply,’’ Nam said.
Hi-Mart shares have hovered around 54,000 won. But Samsung Securities said the share price could easily rise to 80,000 won. <The Korea Times/Lee Hyo-sik>
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