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Is anyone willing to acquire Homeplus as its value drops?
Investors, who face losses after purchasing Homeplus short-term bonds, hold a demonstration in front of the War Memorial of Korea in Seoul, Thursday, calling for strict punishment of MBK Partners executives. Yonhap
By Jun Ji-hye
Naver, GS, Hanwha, Coupang, AliExpress touted as possible buyers
Attention is focused on who will become the new largest shareholder of Homeplus, as the retail store chain, which filed for corporate rehabilitation proceedings in March, is now looking for a buyer to acquire or merge with the company to avoid bankruptcy, according to industry officials Sunday.
This is expected to offer a rare opportunity to acquire the retail giant — valued at 3.7 trillion won ($2.7 billion) in liquidation — at a relatively low price, as MBK Partners, the private equity firm and current largest shareholder, decided to forgo its entire investment of 2.5 trillion won.
In 2015, MBK acquired a 100 percent stake in Homeplus from the British retailer Tesco for 7.2 trillion won. Excluding the 1.2 trillion won in existing debt that Homeplus had assumed, the actual acquisition price was 6 trillion won.
However, a series of unfavorable factors, including a prolonged slump in the retail industry, prevented MBK from selling Homeplus for over a decade. As the retailer continued to struggle with financial difficulties and faced credit rating downgrades, it ultimately filed for corporate rehabilitation with the Seoul Bankruptcy Court on March 4.
Samil PwC, a court-appointed accounting firm, concluded through its financial review last Thursday that Homeplus' liquidation value exceeds its going-concern value by more than 1.2 trillion won, prompting the company to seek a buyer before the court decides on the approval of its rehabilitation plan.
MBK and Homeplus submitted a request to the court the following day, seeking approval to offer the firm on the mergers & acquisitions (M&A) market. The court is expected to deliver its decision as early as this week.
Industry insiders widely anticipate court approval, as the closure of the major retail chain with a workforce of about 19,000 would likely have significant economic repercussions.
Once approved, an M&A deal will involve a capital injection through the issuance of new shares, allowing Homeplus to attract fresh investment. The proceeds will be used to repay existing debts and support future business operations.
As part of the process, MBK decided to voluntarily cancel all of its shares in Homeplus, worth 2.5 trillion won, without compensation.
"MBK is relinquishing all rights, including management control, and will make every effort to support the new buyer’s acquisition of Homeplus," a MBK official said. "We ask for the understanding and cooperation of creditors, the Homeplus labor union, government authorities and the media so that the M&A can proceed smoothly and Homeplus can operate independently as a healthy company."
Homeplus headquarters in Seoul's Gangseo District, April 28 / Yonhap
With MBK set to forfeit its stake in Homeplus, the asset package on offer is expected to be considerably slimmed down, potentially allowing the sale price to drop below 1 trillion won, depending on negotiations with the new buyer, according to industry sources.
Investment banks have already begun preparing advisory services for the potential deal, as many companies are expected to show interest, given that Homeplus' nationwide real estate holdings were valued at 5 trillion won just a year ago.
They say Homeplus, with its network of 126 large-scale stores and 308 smaller outlets nationwide, could play a key role in strengthening retail capabilities for a potential buyer.
Among the potential acquirers mentioned in the market are Naver, GS Group and Hanwha Group. Major e-commerce players such as Coupang and China's AliExpress are also speculated to be interested.
However, there are also concerns that the firm's sale may encounter obstacles.
Critics highlight several unfavorable factors, such as Homeplus' shrinking revenue, its powerful labor union and the uncertain future of offline retail.
Industry officials said pricing will be the crucial factor, pointing out that the fair value of the company will vary greatly depending on how each prospective buyer envisions its future potential.
"The purchase price will hinge on whether the company is seen as a troubled asset or as one capable of a full turnaround," an official from the investment bank industry said. "What is clear, however, is that considering the current liquidation value of 3.7 trillion won, this deal would clearly represent a bargain."