Lotte buying Samsung's chemical businesses for $3.7b

Lotte World Mall in Seoul. South Korea's biggest retail giant is looking for ways to grow its business in areas beyond its core operations.
Lotte World Mall in Seoul. South Korea's biggest retail giant is looking for ways to grow its business in areas beyond its core operations. PHOTO: REUTERS

SEOUL • Lotte Group agreed to buy Samsung Group's chemical businesses for about three trillion won (S$3.7 billion) in the biggest deal since its founding as the South Korean conglomerate seeks to diversify beyond its core retail operations.

The group's chemical arm will take a 31.5 per cent stake in Samsung Fine Chemicals Co, which includes 49 per cent of Samsung BP Chemicals Co. The company will also buy 90 per cent of Samsung SDI Co's chemical unit after it is split off, according to a Lotte statement yesterday.

While Lotte Group, South Korea's biggest retail giant, is looking for ways to grow its business in areas beyond its core operations, Samsung Group has shed less profitable businesses amid a generational transfer of power from chairman and patriarch Lee Kun Hee, who has been hospitalised since last year, leaving his only son Lee Jae Yong as heir apparent.

"Lotte is probably doing it to diversify its business and secure its shares in a downstream market," Mr Han Jae Seung, a Seoul-based analyst at Dongbu Securities, said by phone.

"The purchase seems to be overpriced and I think it should have been valued at about two trillion won for the entire takeover."

Lotte Chemical shares fell as much as 12.2 per cent and traded 10 per cent lower at 251,000 won as of 11.29am in Seoul yesterday. Samsung SDI lost 5 per cent while the nation's benchmark Kospi index was little changed.

Lotte Chemical's sales will increase to about 20 trillion won from 14.9 trillion won after the purchase, the group said in an e-mailed statement. While the transaction will be completed in the first half of next year, the remaining 10 per cent of Samsung SDI's chemical unit will be transferred after three years, the group and Samsung SDI said in separate statements.

At Lotte Group, the deal comes amid a tussle for control.

In July, chairman Shin Dong Bin's older brother Shin Dong Joo, acting through his father, tried to have his younger sibling fired, only to see the plan backfire as the patriarch became sidelined to an honorary position. The case has gained national attention in a country where disputes between family members at corporate dynasties - known locally as the chaebol - are rarely displayed in public.

For Samsung, the sale comes after it sold off stakes in its chemicals and defence businesses for 1.9 trillion won to Hanwha Group.

It completed the transaction earlier this year. Samsung Electronics, Samsung C&T Corp and four other units sold their stakes in Samsung Techwin Co and Samsung General Chemicals Co to Hanwha Group, which has been making explosives for more than six decades.

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A version of this article appeared in the print edition of The Straits Times on October 31, 2015, with the headline 'Lotte buying Samsung's chemical businesses for $3.7b'. Print Edition | Subscribe