MBK-Woori consortium to acquire Lotte Card
The Lotte Card headquarters in Jung-gu, Seoul / Courtesy of Lotte Group
By Jhoo Dong-chan
Lotte Group has changed the preferred bidder for Lotte Card to the MBK Partners-Woori Bank consortium due to an accusation made against the CEO of Hahn & Company by the KT union.
The group had been in talks with Hahn & Company, the preferred bidder since May 3, but said it failed to reach an agreement during the preferential negotiation period that expired May 13.
“We considered our options regarding possible risks from Hahn & Company's legal battle against the union members of mobile carrier KT,” a Lotte Group official said.
“The battle could linger longer than anticipated. Also, we couldn't overlook the possibility that the PEF could face legal punishment. In a bid to swiftly conclude the sale of Lotte Card by mid-October, the group has decided to shift the preferred bidder to the MBK Partners-Woori Bank partnership.”
Under related laws, major shareholders must not have been subject to punishment heavier than a monetary penalty for violating the Fair Trade Act, and tax and special economic laws over the past five years. The financial authorities only allow them to become a major shareholder if the offense is considered minor.
In March, union members of mobile carrier KT and civic group Vampire Capital Hunter jointly accused Hahn & Company of tax evasion when the nation's second-largest PEF sold its business portfolio unit N Search Marketing for 60 billion won ($50.5 million) to KT in October 2016.
The accusers claim the unit's fair value was actually only 17.6 billion won but KT overpaid to acquire the firm, while the CEO of Hahn & Company didn't pay taxes on the excess earnings.
Hahn & Company immediately denied the allegation.
"The complaints KT’s labor union has filed against one of our fund companies are completely groundless and without merit. They contend that an inheritance tax should have been used which is not the case under any tax or commercial laws as inheritance tax is only for those who are related parties," a company official said.
“Hahn & Company or the CEO is not in any way a related party of KT or its management. The valuation was supported by an independent accounting firm which is publicly disclosed, and the required taxes were paid three years ago. There are currently no charges or litigation on this matter and we expect that the Korean prosecutors will review this complaint and concur."
Hahn & Company has reportedly valued Lotte Card at roughly 1.8 trillion won, and said it was willing to acquire an 80 percent stake in the firm.
The MBK Partners-Woori Bank consortium offered a similar price and terms as Hahn & Company. Lotte Group is required to conclude the sale of its card unit by October to meet the country's non-financial holding structure guidelines under the fair trade law.
Sources said MBK Partners is expected to acquire a 60 percent stake in Lotte Card. Woori Bank and Lotte Group will share the remaining 40 percent stake.
Woori Bank would provide the necessary funds for MBK Partners in acquiring the 60 percent stake in the card firm.
It is almost certain MBK Partners will sell the card firm at some point in the future, and observers claim Woori could be a possible candidate to acquire it at that time.
A Woori Bank official immediately denied this.
The bank's holding company Woori Financial Group has been one of the most active players in the nation's M&A market since it became a holding company in January.
If Woori manages to merge its card subsidiary Woori Card with Lotte Card through the consortium, it will create Korea's third-largest card firm with assets of 22.6 trillion won.