S.Korea Lotte pays $1.1 billion for controlling Hi-Mart stake

By Staff Reporter

Jul 06 2012, 12:03 PM EDT

South Korea's Lotte Shopping Co Ltd (023530.KS) said it had signed a deal to buy a controlling stake in electronics retailer Hi-mart Co Ltd (071840.KS) for 1.25 trillion Korean won ($1.1 billion), bringing an end to a process that had been disrupted by an embezzlement scandal involving Hi-mart's chief executive.

Hi-mart said in a separate filing on Friday that its three largest shareholders including Eugene Corp (023410.KQ) had agreed to sell a combined 65.3 percent stake in South Korea's largest electronic retailer to Lotte.

Lotte was picked on Wednesday as the preferred bidder to acquire the stake after Korea-based private equity fund MBK Partners walked away from the deal.

Founded in 1987, Hi-mart operates about 290 stores, controlling 35 percent of the market, ahead of Samsung Digital Plaza. Lotte and Hi-mart can achieve economies of scale using Lotte's multiple retail channels and its position as South Korea's largest department store operator, analysts say.

Eugene shares rose 3.33 percent as of 12 a.m. EDT, while Hi-mart edged down 0.34 percent. Lotte Shopping declined 2 percent.

Shares in Hi-mart closed 11 percent higher on Wednesday when Lotte was announced as preferred bidder.

Hi-mart's stock had previously lost as much as a fifth of its value after bidding closed on June 20, which would have made it tough for MBK to sell the deal to its investors.

Private equity funds like MBK, one of Asia's top home-grown funds, mark their assets to their investors in portfolios, and MBK would have booked a large immediate loss on the Hi-mart deal.

The fund also found a worse-than-expected deterioration in the business on entering exclusive talks, a source previously told Reuters.

Hi-mart shares were suspended in April and the sale brought to a halt when Hi-mart's chief executive, Sun Jong-koo, and others were charged by prosecutors for neglecting their duties and embezzlement totaling $228 million. Trading resumed on May 2.

Citigroup was lead manager for the deal. Goldman Sachs advised Lotte on the sale. ($1 = 1135.0750 Korean won)