Lotte Rental Aiming to Become Second Largest Shareholder of Socar Faces Monopoly and Overpriced Acquisition Controversy

Lotte Rental Expected to Secure 32.91% Stake in Socar by Acquiring 17.9% Held by SK
"Bought at a High Price" Criticism... 354.3 to 368.4 Billion KRW Spent on Share Purchase Alone

Lotte Rental is set to become the second-largest shareholder of Socar by consecutively purchasing its shares. However, it has faced criticism for buying shares at a price 40% higher than Socar's current stock price and controversy over the strengthening monopoly in the car-sharing market.

On the 31st of last month, Lotte Rental agreed to purchase 17.9% of Socar's shares entirely from SK Inc. The total shares to be acquired amount to 5,872,450. The purchase will be conducted in two phases. The first phase will take place within this year after receiving corporate merger approval from the Fair Trade Commission. The second phase is scheduled to be completed by September next year. Once this acquisition is finalized, Lotte Rental will secure a 32.91% stake in Socar, becoming the second-largest shareholder.

Lotte Rental expects Socar's 13 million members to be potential long-term rental car customers. They also plan to strengthen customer service through partnerships with data-based vehicle usage ancillary services owned by Socar, such as Modu Parking and Elecle.

This is not Lotte Rental's first time purchasing Socar shares. In March last year, before Socar's listing, Lotte Rental acquired a 13.29% stake for 174.6 billion KRW. Additionally, on the 22nd of last month, they secured a 3.2% stake for 47.5 billion KRW through a put option contract.

Lotte Rental shareholders are dissatisfied with the high acquisition price. In March last year, Lotte Rental acquired Socar shares at a simple calculation price of 45,172 KRW per share. Socar was then listed on the KOSPI market in August of the same year at a public offering price of 28,000 KRW. The initial price range was proposed between 34,000 and 45,000 KRW but was significantly lowered based on demand forecasting results. This was about 38% lower than the price Lotte Rental paid.

The same applies to the 3.2% stake purchased through the put option on the 22nd of last month. On that day, Hermes Two LLC, a special purpose company under IMM PE, sold half of its 7.39% stake in Socar?3.70% (1,211,898 shares)?to Socar's largest shareholder, SOPONG LLC (which held an 8.46% stake in Socar as of June), by exercising the put option. The amount was 47.5 billion KRW.

These shares were transferred to Lotte Rental. This is because the largest shareholders, SOQRi and SOPONG, had a put option contract allowing them to request Lotte Rental to purchase up to 5% of the issuing company's shares within six months after the expiration of the stock lock-up period following Socar's listing. Lotte Rental purchased Socar shares at 45,172 KRW per share, totaling 47.5 billion KRW. As of the 22nd of last month, Socar's closing price was 12,820 KRW.

The price for the shares being purchased from SK is also substantial. The first phase purchase amount is 66.1 billion KRW (22,500 KRW per share). Compared to the public offering price, this is 19.64% lower, but it is 39.66% higher than the closing price of 16,110 KRW on the 31st of last month (the closing price on the 6th was 13,180 KRW). The second phase will be purchased at the average stock price over three months. The minimum is 66.1 billion KRW, and the maximum is 80.2 billion KRW. Lotte Rental will invest between 354.3 billion and 368.4 billion KRW solely for the share acquisition.

Even if shareholder criticism is overcome, the Fair Trade Commission's review remains. If a company with assets or sales of 300 billion KRW or more acquires 15% or more of the shares of a listed company with assets or sales of 30 billion KRW or more, it must report the corporate merger to the Fair Trade Commission.

Monopoly issues may arise. According to data compiled by Socar based on Hyundai Card payment amounts, in 2020, Socar ranked first in the domestic car-sharing market with a market share of 65.7%. It was followed by Green Car with 29.4% and Deal Car with 5.0%. However, after Deal Car ceased its service last year, as of the first half of this year, the market shares are Socar 83.38% and Green Car 16.62%. Lotte Rental holds an 84.71% stake in Green Car. With this acquisition, it will become the second-largest shareholder of Socar with a 32.91% stake, securing an absolute position in the car-sharing market.

Lotte Rental expects to pass the Fair Trade Commission's review. A Lotte Rental official explained, "We view the car-sharing market as a short-term rental car market with a platform. Recently, Socar has been offering products ranging from daily to monthly units, effectively operating a business model almost identical to rental cars."

There are also concerns regarding synergy effects. Lotte Rental acquired Green Car in 2013. The company grew steadily in the early stages of acquisition but has recently experienced deteriorating performance. Green Car's operating revenue was 63.5 billion KRW in 2021, increasing to 75.5 billion KRW last year. However, operating profit turned into a loss, shifting from 1.7 billion KRW profit to a 400 million KRW loss. Operating profit remained negative in the first half of this year. Market share has also been declining continuously.

Lotte Rental expects synergy effects from Socar's platform technology combined with its own vehicle purchasing power and used car auction facilities. A Lotte Rental official said, "We expect synergy effects in areas such as dispatching vehicles or reducing accident rates by analyzing data owned by Socar. Additionally, among Socar's 13 million members, many are in their 20s and 30s, who could naturally flow into Lotte Rental's long-term rental car membership later."

However, securities firms view Socar's willingness as a crucial factor in realizing synergy effects with Lotte Rental. Hana Securities researcher Song Seon-jae said, "Lotte Rental's goal requires Socar's cooperative collaboration as a premise. If Socar has different intentions, it is a matter that must be resolved by expanding influence within the board of directors."