[Why&Next] Emart's Voluntary Delisting of Shinsegae Food... What's Behind the Move?

Emart Accelerates Full Acquisition of Shinsegae Food
Restructuring and Sale Scenarios Emerge After Delisting

Emart is accelerating the process to fully incorporate Shinsegae Food as a wholly owned subsidiary. As the company has made it clear that it intends to dismantle the listed company structure regardless of the outcome of the public tender offer, the market interprets this delisting as a strategic move, possibly paving the way for future business spin-offs or sales.

According to industry sources on January 21, Emart is reportedly considering various methods, including a comprehensive share swap, to delist Shinsegae Food. Although the recent public tender offer fell short of expectations, observers note that Emart remains convinced that maintaining Shinsegae Food as a listed entity does not align with its mid- to long-term strategy.

Emart completed the public tender offer for Shinsegae Food on January 7, but only about 30% of the targeted shares were tendered. As a result, Emart's stake rose to around 66%, still short of the 95% threshold required for a voluntary delisting. The main reason cited is opposition from minority shareholders, who argue that the price-to-book ratio (PBR) based on the tender offer price was only 0.59 times, which they consider excessively low compared to the book value.

Nevertheless, Emart has already secured more than two-thirds of the voting rights, making it possible to proceed with legal procedures such as a comprehensive share swap to achieve full ownership in the future.

"No Benefits to Being a Listed Company"

The prevailing analysis is that Emart's decision to make Shinsegae Food a 100% subsidiary stems from the judgment that the listed company structure no longer provides any real benefits. Disclosure obligations, minority shareholder management, and restrictions in the decision-making process become greater burdens, especially for businesses with low profitability and high volatility. While these burdens may be tolerable for core growth assets, maintaining a listing can act as a strategic constraint if that is not the case.

Transitioning to a wholly owned subsidiary structure increases agility in business restructuring and cost optimization. It also allows for more flexibility in adjusting internal synergies in distribution, logistics, and procurement. The company can redesign its business from a long-term perspective without being constrained by the scrutiny of external stakeholders.

This decision aligns with Emart's ongoing efforts to reorganize its asset portfolio. In recent years, Emart has focused on selecting and concentrating on core assets, while adopting a strategy of divesting or managing non-core assets. In this process, Shinsegae Food has been redefined as an asset that should be approached from the perspective of business efficiency and structural stability, rather than aggressive expansion.

In fact, Shinsegae Food has long been considered a potential divestiture candidate within the group. In 2020, there were discussions with Hahn & Company about a possible sale, but the deal reportedly fell through due to differences in price expectations. The limited synergy with Emart's core distribution business, along with the high volatility of the food manufacturing and dining sectors, made it difficult to predict returns on investment, which was a significant concern.

Shinsegae Food's Operating Margin at 1%... Ongoing Exit from Low-Profit Businesses

This assessment is also reflected in the company's performance trends. Although Shinsegae Food has steadily increased its sales over the past three years, its operating margin has remained in the 1% range. There is a clear separation between top-line growth and profitability improvement. In the third quarter of last year, consolidated operating profit was 1.7 billion won, down 41.4% from the same period the previous year. While the sale of the food service division is reflected in last year's annual consensus estimates of 1.4803 trillion won in sales and 40.4 billion won in operating profit, some argue that this does not represent a fundamental structural improvement.

In reality, Shinsegae Food has been gradually exiting low-profit businesses over the past year. The withdrawal from No Brand Pizza, liquidation of the US plant-based meat subsidiary Better Foods, and the divestment of Smoothie King are notable examples. In August last year, the company sold its group catering business to Ourhome for 120 billion won, simplifying its business portfolio to focus on food manufacturing and distribution, as well as dining and bakery operations.

The market sees this as a turning point for the delisting initiative. The sale of the catering business reduced the company's scale and streamlined its business portfolio, making the strategic options for the remaining businesses much clearer. If Shinsegae Food remains a listed company, further restructuring or the separation and sale of business units would inevitably face disclosure obligations and resistance from minority shareholders. However, as an unlisted entity, the group can proceed with swift restructuring decisions at the corporate level.

Strengthening Food Distribution Competitiveness vs. Selling Bakery and Food Manufacturing Businesses

There are two main scenarios for Shinsegae Food after delisting. In the short term, the company is likely to focus on strengthening its B2B operations and improving the efficiency of its dining business. Since CEO Lim Hyungseop took office, Shinsegae Food has been considering expanding its bakery B2B product lineup and enhancing its competitiveness in food distribution, while No Brand Burger is accelerating franchise expansion with its "compact store" model. Free from the burdens of being a listed company, the company can more easily streamline unprofitable stores and reprioritize investments based on profitability.

In the medium to long term, the company could bundle its bakery B2B and food manufacturing divisions for sale to a strategic investor (SI) or financial investor (FI), or it could separate the dining and franchise businesses for independent transactions. In reality, it is difficult for a listed company to craft a clear narrative while operating both dining and B2B businesses together, but as an unlisted entity, a "split strategy" becomes much more feasible.

An industry insider commented, "Once Shinsegae Food becomes unlisted, there is less need to keep all its businesses together as a single unit. The company now has more options to manage each segment in the most optimal way." He added, "While it is too early to say which direction the company will take, it is natural to expect that, in the future, Shinsegae Food may seek partners for each business unit or consider alternative transaction structures."