Lotte Shopping block sale marks end of family feud

Group founder’s elder son raises $341 million from selling part of his stake in retail flagship, marking his withdrawal from a bitter years-long power struggle with his brother.

A bitter, years-long power struggle that has torn apart the family behind Korean chaebol Lotte Group is over, after the elder son of group founder Shin Kyuk-ho waved the white flag by selling part of his stake in retail flagship Lotte Shopping.

Sources familiar with the situation said Shin Dong-joo sold 5.5% of the Seoul-listed shopping group, representing more than 40% of his personal stake, in a secondary market block trade after markets closed on Thursday. He raised some W391 billion ($341 million).

The share sale marks the withdrawal of Dong-joo, known as Hiroyuki Shigemitsu in Japan, from the battle for control of the Japanese-Korean food-to-industrial conglomerate. Lotte’s family feud started in 2013 when Dong-joo and younger brother Shin Dong-bin began building up stakes in group affiliates in an attempt to oust each other.

They stepped up their rivalry last year, when Dong-bin fended off his brother’s challenge to his role as group chairman at an extraordinary general meeting, giving him control over the business empire founded 69 years ago.

Thursday's share sale marks the effective end of the battle. Dong-joo had owned 13.45% of the retail unit, against his brother's 13.46% stake, but has now seen his holdings reduced to 7.95%.

One source familiar with the situation said Dong-joo decided to monetise part of his shareholding to settle a massive tax bill.

Risk factors

The share sale was carefully structured by sole bookrunner Morgan Stanley, which had to price in multiple risk factors surrounding the stock.

Apart from uncertainty caused by the family drama, Lotte Group has also found itself at the centre of a bribery scandal since last June, with the brothers' sister, Shin Young-ja, arrested in July. Dong-bin himself was charged with embezzlement, tax evasion and other business irregularities by South Korean prosecutors in October.

The bribery allegations were the main reason Lotte postponed the initial public offering of its duty-free chain and hotel business last year, which had been seen as an important step to simplify its highly-complex corporate structure.

Lotte Shopping swung back to losses in the fourth quarter of last year amid the probe, booking a net loss of W4 billion against a net profit of W48 billion in the third quarter. Despite gaining 15% since the beginning of the year, the stock is still hovering near its lowest level since 2009.

Against such a backdrop Morgan Stanley advised the seller to offer the shares at a deep discount to market price. When the trade opened early Thursday night, the 1.73 million shares on offer were pitched at W222,000 to W232,000 each, representing a hefty discount of 8.7% to 12.6% on Lotte Shopping’s Thursday close at W254,000.

Final price was set at W226,000 per share, an 11% discount – an extremely deep concession in a market known for pricing follow-on offerings with tight discounts.

To facilitate the trade Morgan Stanley sounded out investors before launch, allowing it to secure orders to cover about 80% of the deal when bookbuild started, the source told FinanceAsia.

The final order book is well balanced between domestic and international investors, and consisted of about 30 accounts including sovereign wealth funds, long-only investors and hedge funds.

Dong-joo will be subject to a 60-day lockup on his remaining 7.95% stake.

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