Lotte succession war far from over

Lotte Group is embroiled in a succession dispute after its founder Shin Kyuk-ho, left, dismissed his eldest son Dong-joo, center, former vice chairman of Lotte Holdings in Japan, giving Dong-bin, right, Lotte Group Korea chairman, the upper hand in the row.

By Lee Hyo-sik

Judging from what has happened at Lotte Group recently, Shin Dong-bin, the second son of group founder Kyuk-ho, will likely inherit the 88 trillion won business empire. Dong-bin is the chairman of Lotte Group Korea.

His older brother Dong-joo, who had managed Lotte Group Japan, lost all his titles over the past two weeks. His dismissal was engineered by his 93-year-old father, who still exerts absolute control over group management, as the former vice chairman of Lotte Holdings in Japan attempted to meddle in the management of the group's Korean operations.

However, Dong-joo will not likely back down obediently, according to chaebol insiders, who say he could wage a war against his younger brother to win back control of the group when his aging father becomes unable to participate in management.

Even though Dong-joo lost his official titles, he still holds considerable stakes in Lotte Confectionary and other key units of the group here.

It was a widely held belief that Dong-joo would control Lotte's operations in Japan, while Lotte Group Chairman Dong-bin would take over its Korean units when their father retires.

But this notion took an unexpected turn on Jan. 8 when Dong-joo was fired as vice chairman of Lotte Holdings in Japan. On Dec. 26, he also lost executive posts at three main subsidiaries of Lotte Group Japan.

"It is obvious that Lotte Group General Chairman Shin Kyuk-ho fired his eldest son. Who would dismiss the No.2 man from his post? Only one man can do so," said an executive at one of the country's major business associations, who declined to be named. "For now, it appears that Dong-bin will likely be the heir, but it still remains to be seen."

The executive said Dong-joo could strike back to reclaim management control in the future as he holds as many stakes as his younger brother in Lotte group units. "Dong-joo was likely fired as he increased his stakes in Lotte Confectionary and other group units here, a move seen by many to increase his clout in Korea."

The former vice chairman holds a 3.96 percent stake in the snack maker, while Dong-bin has 5.34 percent. Dong-joo also holds a 13.45 percent in Lotte Shopping and considerable stakes in Lotte Chilsung and other group units.

"It seems that his father disapproved of his eldest son's actions. When Dong-joo showed an intention to expand his reach here, the senior Shin decided to dismiss him," the executive said. "However, we still don't know who will eventually inherit Lotte Group because Kyuk-ho hasn't said officially who his successor will be. The situation could develop into a full-blown sibling feud like in the Kumho Asiana, Doosan and Samsung groups."

Dong-joo may plot a revolt when the senior Shin becomes ill or retires, he said, adding that to prevent the potential sibling row, the founder has to name his successor as soon as possible and take steps to help the heir strengthen control of the group.

On Tuesday, Dong-bin told reporters that the dismissal of his brother was orchestrated by his father, stressing that he did not play any role. The chairman went to Japan on Jan. 10 to meet with executives of Lotte Holdings there and its subsidiaries. He also said he met with his older brother briefly without elaborating what they discussed.

Meanwhile, Dong-joo came to Korea on Jan. 9, a day after he was fired. He reportedly met with his father and attended family functions. He returned to Japan, Monday.

"All we can say is that the general chairman has been making all the decisions concerning Dong-joo's dismissal," a Lotte Group spokesman said. "He is still very much in control."

The founder holds a 28 percent stake in Lotte Holdings in Japan, which has a 19.1 percent stake in Lotte Hotel, the de facto holding company of the Lotte Group here. Lotte Hotel holds an 8.8 percent share in Lotte Shopping and considerable stakes in other key group units.

The senior Shin founded Lotte in Japan in 1948 as a snack maker. Over the years, the group expanded into the manufacturing and services sectors. The group entered Korea in 1967 and has grown into the country's fifth-largest conglomerate, operating units in retail, hotels and petrochemical industries among others.

The group as a whole was expected to post sales of about 90 trillion won last year, and aims to boost this to 200 trillion won by 2018.

In contrast to Lotte Group's rapid growth in Korea, its Japanese operations have largely stagnated. The group's Korean business is 15 times larger by revenue than the Japanese unit.

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