Emart forgoes full control of Starbucks Korea

An employee of Starbucks Korea shows off popular Starbucks goods. Korea Times file

Retail chain's cash reserved for eBay acquisition bid against Lotte Shopping

By Lee Kyung-min

Emart has decided to increase its 50 percent stake in Starbucks Korea to 70 percent, buying only a 20 percent stake from Starbucks International, which is selling off its full 50 percent stake.

This indicates Emart's parent company Shinsegae Group is holding onto the funds that would have paid for the remaining 30 percent stake, which likely will be reserved to beat Lotte Shopping in an ongoing bid to acquire eBay Korea valued at up to 5 trillion won ($4.4 billion).

The Government of Singapore Investment Corp. (GIC), a sovereign wealth fund of Singapore, will instead invest 800 billion won in Starbucks Korea to gain the 30 percent stake in the Korean unit of the global coffeehouse chain.

The decision to forgo full control of the fast-growing coffee chain, which has seen 20 percent year-on-year growth since 2016 continue despite the COVID-19 pandemic, came as competition for eBay heats up, with two of the four previously shortlisted firms practically withdrawing.

Aside from the two retail firms, MBK Partners, a local private equity firm, and SK Telecom expressed keen interest in what they considered to be a rare opportunity to change their profit models dramatically.

According to Statistics Korea data, eBay Korea is the country's third-largest e-commerce platform, with a 12 percent market share, following Naver (18 percent) and Coupang (13 percent).

Both Shinsegae and Lotte need at least 4 trillion won to enter the main bid scheduled for next month.

Their funding capacity will be determined by the amount of liquid, cash-like assets, the amount of funds borrowed, ability to generate cash, the amount borrowable from their affiliates and future investment plans.

Shinsegae's Emart reported an operating profit of 123.2 billion won in the January-March period, far exceeding market consensus and recovering past the important 100-billion mark for the first time in three years.

The figure for Lotte Shopping also increased by 18.5 percent in the same period, but stood at only 61.8 billion won, with the business prospects remaining uncertain at its money-losing e-commerce and movie theater units.

Yet liquid assets held by Lotte amount to 4.2 trillion won as of the first quarter, while Shinsegae holds liquid assets worth 2.4 trillion won. The amount borrowed by Lotte is 16.4 trillion won, almost triple the 6.2 trillion won borrowed by Shinsegae.

Their earnings before interest, taxes, depreciation and amortization divided by the amount borrowed is 9.3 for Lotte and 4.5 for Emart. These figures measure how quickly the firms can pay off the debt through corporate activities. The lower the figure, the higher the corporate value.

Meanwhile, Shinsegae and the GIC reportedly concluded that the value of Starbucks Korea would exceed 3 trillion won, prompting the sovereign wealth fund not to demand a guarantee of minimum return.

Starbucks Korea was established in 1997 as a joint venture between Emart and Starbucks International and has since reported 24 years of rapid growth.

The firm's sales first exceeded 1 trillion won in 2016 and soared further to over 1.9 trillion won last year, reaching nearly 2 trillion won in just five years.

Its operating profit increased to 164.3 billion won, up from 85.2 billion won, and net profit also rose to 99.6 billion won from 65.2 billion won in the same period.

Its “Siren Orders” and drive-thru services were key to weathering the pandemic-sparked nosedive in the face-to-face service industries. It has more than 1,500 stores nationwide.