By Lee Hyo-sik
Lotte Group is paying too much for Samsung Group’s chemical units, according to many securities firms Monday that have rushed to lower their outlook for Lotte’s chemical affiliate.
The brokerages say that besides the 2.8 trillion won ($2.45 billion) that Korea’s fifth-largest conglomerate promised to pay Samsung, the group will likely shoulder additional costs to appease Samsung employees, many of whom oppose the sale of their companies to Lotte.
In addition, Lotte Chemical may face difficulties selling more products at home and abroad amid the continued global chemical supply glut.
On Oct. 30, Lotte Chemical said it will acquire a 90 percent stake in Samsung SDI’s chemical business, a 31.23 percent stake in Samsung Fine Chemicals and 49 percent of Samsung BP Chemicals for 2.8 trillion won.
On Monday, Dongbu Securities slashed its target price for Lotte Chemical to 370,000 won from 400,000 won, saying the company is paying too much for Samsung’s chemical businesses.
“We estimate that Lotte paid 840 billion won more for Samsung SDI’s chemical division and 140 billion won more for Samsung Fine Chemicals, compared to their corporate values,” Dongbu Securities analyst Han Seung-jae said. “Even if the prices include a premium for management rights, they are still too high. So we decided to lower the company’s target price.”
Korea Investment and Securities echoed Dongbu’s views, downgrading its outlook for Lotte Chemical.
“Even though Lotte Chemical will see its cash flow expand after acquiring the Samsung units, it will also have to deal with rising debt,” company analyst Lee Do-yeon said. “The takeover will do more harm than good to Lotte. As a result, its stocks will lose about 38,000 won in value per share.”
Lee then raised the possibility that Lotte may have to bear additional expenses as it has to compensate employees of the Samsung chemical units. “As far as I know, many Samsung employees do not want to be transferred to Lotte. This means that Lotte has to offer something to appease them.”
In addition, Lotte may not reap as much in benefits as it hopes to from the acquisition as the global chemical oversupply continues, the analyst said.
However, Lotte Chemical said the takeover is not overpriced, stressing that the company will generate a great deal of business with Samsung’s chemical units.
“Many people have different views of our acquisition,” a company spokesman said. “Some say we are paying too much for them. However, we studied the takeover thoroughly and reached the decision to buy them at 2.8 trillion won. We estimate the price is not too high because we will generate greater financial benefits from the deal.”
On Monday, shares of Lotte Chemical rose 1.25 percent on a technical rebound from previous trades, closing at 243,500 won. Last Friday, the shares plunged 13.8 percent on the takeover news.