'Saero·Cheoeumcheoreom' Temnanda... 'Bulhwangsaneop' PEF, Lotte Group Juryu Business-e Gunchim

Acceleration of Restructuring to Overcome Lotte Group's Liquidity Crisis
Possibility of Partial Sale of Lotte Chilsung's Alcohol Business Raised

Lotte Group is attracting market attention as it embarks on business restructuring, including the sale of non-core affiliates, to overcome liquidity crises. While Lotte Chemical's building materials business and Lotte Capital are mentioned as potential sale items, private equity funds (PEFs) with large-scale funds to absorb restructuring assets are showing interest in Lotte Chilsung Beverage's alcoholic beverage division.

On the 18th, a representative of a major domestic PEF said, "Among Lotte Chilsung Beverage's alcoholic beverage division, the soju business is particularly attractive from a PEF perspective," adding, "Since it was acquired from Doosan Group, the psychological hurdle is expected to be lower than confectionery, beverages, or real estate."

Whenever Lotte Group's restructuring is mentioned, the first business to come up among investors is Lotte's alcoholic beverage business. As it is not a core business of Lotte Group and has low profitability, rumors of its sale have been continuously raised.

Last year, Lotte Chilsung Beverage's alcoholic beverage business recorded an operating profit of 33.6 billion KRW, down about 9% from the previous year. The operating profit margin of the alcoholic beverage business was 4.2%, only about half that of the beverage business (8.3%).

Thanks to the popularity of the low-alcohol drink 'Saero' introduced by Lotte in 2022, the soju business is supporting performance, but the beer, wine, and whiskey businesses have yet to find a clear breakthrough in the market.

Speculation that Lotte Chilsung might sell its alcoholic beverage business is not recent. As a potential asset that has been consistently discussed, it is reported that prospective buyers, including PEFs, have approached with offers several times over the past few years.

There are investor doubts about whether the alcoholic beverage business is suitable for large corporations to operate, and its profitability does not significantly aid the group’s financial situation. Conversely, if acquired by a PEF, it is evaluated as a business well-suited to maximizing profitability through cost efficiency based on networks and sales capabilities.

Recently, M&A advisory firms and PEFs have been actively moving to negotiate deals with Lotte Group. Since there are still many assets to utilize and Lotte Group has shown a willingness to sell by abandoning its conservative stance, they aim to create transactions. The market analyzes that it is unlikely that all of Lotte Chilsung’s alcoholic beverage businesses will be put up for sale, and that only some business segments, excluding the wine business, are likely to be sold.

A senior representative from the PEF industry said, "We expect more affiliate assets from Lotte Group to come out and are watching with interest."

Meanwhile, Lotte Liquor was previously operated by Doosan Group before being sold to Lotte Group. Originating from Gangneung Hapdong Brewery in 1926, Lotte Liquor was incorporated into Doosan Group in 1985. The company changed its name from Baekhwa in 1990, Doosan Baekhwa in 1995, to Doosan Liquor BG in 1998. During Doosan Group’s restructuring in 2009, Doosan Liquor BG was acquired by Lotte Group.