Hyundai eyes acquiring Olive Young stake

People shop at an Olive Young store in Seoul, Sept. 21. / Courtesy of CJ Olive Young

By Kim Jae-heun

One of the top three Korean department stores, Hyundai Department Store, is rumored to be eyeing acquiring a minor stake in CJ Olive Young, the country's No.1 health and beauty product retailer.

“The deal is in the very early stages and it has not been decided how many of Olive Young's shares Hyundai Department Store will buy,” an industry source said. “This is different from Olive Young's pre-IPO deal that is currently being carried out with private equity funds.”

Hyundai Department Store has been expanding its business in the fashion and cosmetics fields to achieve its holding company's ultimate goal of becoming a “total life care firm.”

The department store took over the country's No.1 natural cosmetics ingredients maker SK Bioland in August.

“The cosmetics sector is still promising despite the saturated market. Beauty products and underwear have high margins. That is why Lotte Department has launched its own cosmetics brand,” another source from the retail sector said.

However, Hyundai Department Store said the rumors were untrue and it was not considering buying shares in Olive Young.

Meanwhile, shares of Olive Young, sold with underwriters Credit Suisse and Shinhan Investment, have been more popular than expected.

It appears CJ Group did not see this coming as the company will only sell off a small number of shares. However, over 14 buyers including private equity funds (PEF) Texas Pacific Group, Hahn & Company, Glenwood Private Equity and financial investors such as IMM Private Equity and JKL Partners have shown an interest in the offering.

The company is reviewing the deal although a shortlist of buyers has yet to be finalized. Credit Suisse is the lead financial advisor for the sales.

CJ Group will dispose of 17.97 percent of Lee Sun-ho's stake and 10.03 percent of Lee Jae-hwan's stake, which is expected to be traded for up to 300 billion won ($264.71 million). Lee Sun-ho is CJ Group's heir apparent and the eldest son of CJ Group Chairman Lee Jay-hyun. Lee Jae-hwan is the younger brother of the chairman.

Many PEFs think this could help them to acquire the health and beauty product store in the future. CJ Olive Young is an attractive business as it offers not only cosmetics but also a range of health products and daily necessities.

Olive Young also has great merit in that its main rival, LOHB's, developed by the country's fifth largest conglomerate Lotte Group, is experiencing difficulties in its business. Olive Young has no competitor threatening its position in the local market.

The business is also a dominant player in the health and beauty store sector with over 70 percent of the market share. It operates over 1,000 stores across the country and it recently started a delivery service that delivers products within three hours. This is creating a synergy between Olive Young's stores and its online mall, which started slow but is now displaying great potential to become successful like its physical stores.

“Recently, there have been several cases where PEFs made a lot of profit from minority investment in the M&A market. If the firm has a good business outlook, PEFs can start from buying a small stake and exit at a higher price through the initial public offering later. They don't only have to chase after the takeover of the firm,” an industry source said.

But it is uncertain if the current buzz will carry through to the final bidding.

CJ Group aims to sell Olive Young's stake at a high price as this deal is intended to raise funds for use in the succession process. Competition between global PEFs will also likely bring the price to a peak.

“The current interest shows how Olive Young's business outlook is bright for the future. However, I am not sure if the company is worth betting on at too a high price,” another industry source said.

CJ Olive Young declined to comment citing the sensitivity of the issue.