Lotte Business Group, the nation’s fifth largest conglomerate, officially shifted into a holding company system. The business group, marking its 5th anniversary this year, has laid a foundation to improve its corporate governance with the inauguration of the holding company. The holding company structure will allow Lotte Group Chairman Shin Dong-bin to secure a stable stake in the holding company, virtually ending a family management feud that has lasted for two years, industry and business analysts said.
While speaking at a ceremony to inaugurate the holding company at the Lotte World Tower in Jamsil, Seoul, on Oct. 12, Chairman Shin said, “The launch of the holding company not only heralds the announcement of Lotte’s vision designed to enhance management transparency and create new corporate values, but also lays a foundation for Lotte Group’s continuing of development and innovation.”
The inauguration of the holding company comes about one year after Lotte Chairman Shin announced a plan to reform the group’s management. The holding company structure is aimed at reinventing a structure in which “Lotte Korea” is controlled by “Lotte Japan.” It is also designed to simplify the opaque web of cross-sharing by inaugurating a single holding company entity among the spin-offs of the four listed companies ― Lotte Confectionary, the mother company of the group, Lotte Shopping, Lotte Food and Lotte Chilsung Beverage. The single holding company has now incorporated 138 entities, including 42 subsidiaries and overseas operations. It has 4.88 trillion won in equity capital, and assets worth 6.35 trillion won.
The holding company plans to incorporate more Lotte subsidiaries through takeover bids, spinoffs, mergers and equity purchases. It plans to focus on secure new growth engines by exploring new businesses and M&As. The restructuring dramatically reduces the number of cross-shareholdings within the group from 50 to 13. Lotte Group President Hwang Gak-gyu, in charge of management innovation, who co-heads the holding company with Group Chairman Shin, said, “The simplifying of corporate governance will bring the market’s positive revaluation of shareholders’ values.”
Lotte Group unveiled its new corporate symbol with the inauguration of the holding company. Lotte Group Chairman Shin has strengthened his reins over the group’s management with a 13 percent stake in the holding company. The figure brings to more than 51.7 percent the combined stakes favorable to Chairman Shin, including a combined 27.2 percent share in Lotte subsidiaries in Korea, a 5 percent stake in Lotte Foundation, and a 4.5 percent stake in Japan Lotte Holdings, chaired by Shin.
On the other hand, SDJ Corporation Chairman Shin Dong-ju, who was opposed to the spin-offs and mergers, disposed of his stakes in the four listed Lotte subsidiaries. He now has a paltry 0.3 percent stake in the holding company, and Lotte founder Shin Kyuk-ho owns a 3.6 percent stake. Lotte Group Senior Executive Vice President Oh Sung-yeop in charge of communications said a family feud over management rights is virtually over.
But Lotte Group Chairman Shin’s “New Lotte Vision” will be fully realized when Lotte Hotel is listed on the Korean bourse. Lotte Hotel owns stakes in Lotte subsidiaries, albeit fewer than the holding company. Japan Lotte has a 99 percent stake in Lotte Hotel. Lotte should list Lotte Hotel, thus lessening influence from Japan Lotte and removing the image of a Japanese company. In June 2016, Lotte Group’s scheme to list Lotte Hotel was put on hold due to the prosecution’s probe into a management scandal and the group’s underperformance caused by China’s retaliation against the installation of the U.S. Terminal High Altitude Defense (THAAD) system in Korea.
Lotte President Hwang said his group will continue to strive to list Lotte Hotel, and ultimately Lotte Hotel will be merged into the holding company.