Lotte's aggressive M&As under scrutiny
A slew of mergers and acquisitions (M&As) the Lotte Group has carried out at home and abroad have elevated the retail giant to a new level, but such moves have also become the target of intense scrutiny by prosecutors amid their widening probe into the group's alleged slush funds, industry watchers said Wednesday.
Shin Dong-bin, the second son of group founder Shin Kyuk-ho, was promoted to Lotte chairman in 2011 to take the helm of the conglomerate with businesses ranging from food and retail to chemical and construction.
Unlike his father who stuck to traditional management and real estate investment, the junior Shin, who has an MBA from Columbia University, has preferred M&As as a way to diversify the company's business portfolio and expand assets.
The 61-year-old Shin has played a key role in pushing for a series of takeover deals since he served as a senior management executive in 2004, clinching 36 deals worth 14 trillion won ($11.8 billion) at home and abroad over the past 12 years.
In the midst of the 2008 financial crisis, the cash-rich company aggressively bought local companies in the liquor, duty-free, convenience and department stores to beef up its food and retail business.
Abroad, the group bought Belgian chocolate maker Guylian for $164 million in 2008 and acquired food companies in China, Malaysia, the Philippines and Pakistan between 2008 and 2010.
The move further picked up the pace under Shin's chairmanship, as Lotte bought electronics store HiMart for 1.24 trillion won in 2012 and took over KT Rental, the nation's largest rental company, for 1.2 trillion won in 2015.
Last year, Lotte also took over two chemical units of the Samsung Group for 3 trillion won to corroborate its chemical business.
Through a series of big deals, Lotte has moved up two notches from 2003 to become the nation's fifth-largest conglomerate that generated 81 trillion won of revenue in 2014.
The aggressive M&A push, however, has come to a halt for now, as prosecutors are widening their probe into the group and major affiliates to look into whether the deals and other real estate transactions were used as a way to create slush funds.
Investigators have carried out two rounds of raids on Lotte headquarters, affiliates and houses of senior executives in less than a week to confiscate documents and computer files that may give clues on alleged embezzlement and slush fund creation.
Lotte has flatly denied illegal practices, claiming those deals were carried out under a long-term business strategy.
Market watchers expect M&As between unlisted affiliates and overseas units may be the main target of the investigation as prosecutors were looking into whether the owning family took illicit profit from big deals.
"Expanding businesses through M&As are not subject to criticism, but the key issue is whether the company conducted unfair business practices for the sake of large shareholders," Park Yong-rin, a senior researcher at the Korea Capital Market Institute, said.
"Investigators are expected to delve into whether there were irregularities in transactions related to unlisted companies or overseas M&As, and whether profits were handed over to large shareholders in the process." (Yonhap)