[Into the Stocks] Emart Targets eBay, "Increased Market Dominance" VS "Overambitious Acquisition"

E-commerce 'Giant' Emerges After Acquisition Success
Physical Integration Process and Role Sharing with Naver as Variables
About 1 Trillion Won External Funding Needed... Possibility of Naver Collaboration Failure

[Image source=Yonhap News]

[Asia Economy Reporter Minwoo Lee] There are mixed forecasts regarding Emart's acquisition of eBay Korea. If completed smoothly, market share could surge, fostering future growth momentum, but some point out that the synergy from the merger itself may be less than expected. Meanwhile, noise is growing as there is speculation that Naver, which was supposed to participate in the acquisition together, might withdraw.

As of 2:40 PM on the 18th, Emart's stock price recorded 161,500 KRW, down 2.71% from the previous day. After hitting a yearly high of 191,500 KRW on January 13, it rebounded once around mid-February but has generally been on a downward trend. This contrasts with companies like Lotte Food, whose stock prices rose during the same period due to increased expectations of 'revenge consumption' fueled by COVID-19 vaccine distribution. Emart began slipping from the 190,000 KRW range after February 19 and fell 11% by the previous day, while Lotte Food rose 17.39% during the same period.

The reason Emart missed out on the revenge consumption wave was news of its participation in the eBay Korea acquisition. According to investment banking (IB) industry sources, SK Telecom and MBK Partners did not submit letters of intent in the main bidding for eBay Korea's sale on the 7th, making Shinsegae Group, led by Lotte Group and Emart, the leading candidate. Since eBay Korea's valuation is estimated to exceed 3 trillion KRW, there are concerns that this could place a significant burden on the performance of Emart and Shinsegae, whose market capitalizations are around 4.5 trillion KRW and 2.7 trillion KRW, respectively. Shinsegae's stock price has fallen about 9% this month alone, reflecting this concern.

Becoming an E-commerce 'Giant' if Acquisition Succeeds

The securities industry expects Emart's market dominance to grow rapidly if the acquisition is successful. Nam Sung-hyun, a researcher at Hanwha Investment & Securities, said, "If the eBay Korea acquisition is completed normally, Emart's online transaction volume will reach about 21 trillion KRW based on last year, and the expected transaction volume for this year will reach 23 trillion KRW." He added, "Considering that the online market size was about 159 trillion KRW last year, the market share is expected to jump sharply from about 2.5% to 13.2%."

It is especially expected to strengthen competitiveness in the relatively weak open market sector. Seo Jung-yeon, a researcher at Shin Young Securities, said, "Since most of eBay Korea's 20 trillion KRW transaction volume is conducted in an open market format, Emart, which is relatively weak in this business, will be able to secure customers and vendors simultaneously." He added, "Moreover, Emart's own planned open market is scheduled to officially launch at the end of June, so the acquisition of eBay is expected to help it quickly establish a foothold."

Collaboration with Naver, which is known to participate in the acquisition, is also an anticipated factor. Analysts suggest this could address SSG.com's weaknesses compared to competitors, such as a lack of non-food (industrial goods) SKUs, limited free shipping services, and absence of free return services. Seo said, "Through the alliance of eBay, Naver, and CJ Logistics, a strong value chain connecting sourcing, logistics, and customer service can be established." He explained, "The eBay Korea acquisition is meaningful not only for this deal but also because it affects the original collaboration with Naver, allowing for a more concrete and faster plan to create synergy in online and offline distribution."

Physical Integration Process and Role Allocation Are Variables

SSG.com Neo003 Logistics Center, Gochon-eup, Gimpo-si, Gyeonggi-do [Image source=Yonhap News]

Not all outlooks are rosy. First, there are concerns about whether the physical integration of each platform will proceed smoothly. Naver maintains the number one position in the industry with its Smart Store. Emart operates two online platforms: SSG.com and W Concept. Considering that eBay Korea also operates three online platforms, there are a total of six platforms. Even looking only at Emart, there are five platforms. If system integration and IT infrastructure sharing are not stable, discord could increase.

Additional infrastructure investment after acquisition is also essential. Logistics infrastructure investment must accompany the acquisition to build long-term competitiveness. Researcher Nam Sung-hyun pointed out, "Without logistics infrastructure, competitiveness in the seller market and stable cargo volume in the last mile (final delivery to customers) process will be difficult."

Role allocation with Naver is also a challenge to be resolved. The online shopping market is highly price-competitive and requires high logistics costs, making stable profit generation difficult. Nevertheless, it is considered an attractive market because additional revenue structures such as fulfillment (integrated logistics services including storage, packaging, delivery, and inventory management), advertising, payment, and seller credit loans are possible. Since Emart has partnered with Naver, role sharing is expected. Nam explained, "While the online shopping market offers advantages such as increased transaction volume and expanded competitiveness, there may be some limitations in building additional business structures."

Financial Burden Also Significant... Possibility of Naver Collaboration Failure

Interior view of eBay Korea headquarters in Gangnam-gu, Seoul [Image source=Yonhap News]

Financial burdens could also be a stumbling block. On this day, Hong Kong-based securities firm CLSA gave Emart a 'sell' rating and a target price of 139,000 KRW. Considering the previous day's closing price of 166,000 KRW, this suggests the stock should fall more than 16% to reach a fair value. Brian Lee, a CLSA researcher, said, "Competition in the e-commerce market is intensifying, and differentiation of services and platforms is key, but the open market format of eBay Korea's platform has low growth potential and competitiveness, so synergy between the two companies will be limited." He added, "There are also concerns about the burden from Emart's huge acquisition costs."

In fact, even if Naver participates by acquiring a 20% stake in eBay Korea, Emart must purchase an 80% stake, estimated to require about 3.5 trillion KRW. Even combining Emart's 1.5 trillion KRW from disposals of tangible assets and 1 trillion KRW in investment assets, there is still a shortfall of about 1 trillion KRW.

Meanwhile, the possibility of a breakdown in collaboration with Naver has emerged. It is reported that Naver is concerned about the need for large additional investments if it acquires eBay Korea, which has not seen proper investment for the past 10 years. Additionally, there are concerns that regulatory authorities such as the Fair Trade Commission would intervene if Naver acquires a significant stake in the open market, as Naver operates a price comparison service and this could harm market fairness. Furthermore, Naver reportedly hesitated because eBay opposed the stock swap method Naver intended to use for the acquisition, as was done in previous M&A deals.