Korea’s Lotte Group plans to acquire Hyundai Logistics Co and merge it with Lotte Logistics Corp. with an ambition to have the merged entity go public on the main bourse in a few years and make logistics its core business along with retail.

An official at Lotte Group who declined to be named on Thursday said “We will push forward with an initial public offering (IPO) (of the merged entity) after we purchase Hyundai Logistics and enhance the corporate value.” The official also added that the group would increase its stake in Hyundai Logistics without the assistance of strategic investors.

Early this month, Lotte announced a plan to buy a controlling stake in Hyundai Logistics through its eight affiliates and invite some strategic investors to the deal, but it changed its stance and decided to use its own funds without external help.

The group initially said seven Lotte companies plan to chip in to obtain a 71.7 percent stake in Hyundai Logistics at 506.9 billion won ($430 million). According to the plan, Lotte Chemical Corp. plans to buy a 21.9 percent stake for 155 billion won; 4.5 percent for Lotte Chilsung Beverage Co.; 4.9 percent for Lotte Food Co.; 4.5 percent for Lotte Confectionary Co.; 13.9 percent for Lotte Logistics; 4.5 percent for Lotte Shopping Co.; 17.4 percent for Hotel Lotte Co. Lotteria Co. will likely soon announce its participation in the takeover.

Lotte is also considering asking Japan-based Orix Private Equity that used to have management control of Hyundai Logistics to maintain its minor stake as a financial investor, which could allow Lotte and Orix to hold a total 88.8 percent stake estimated at 620 billion won when the acquisition is completed by July. Such an aggressive move by Lotte reflects its ambition to be a retail and logistics behemoth.

“If Lotte Logistics and Hyundai Logistics are combined, Lotte will command transport access on land, sea, and air,” said an unnamed source in the investment banking (IB) industry. Access to all three routes is expected to create great synergy effects for Lotte’s retail business. Lotte Logistics with a number of logistics centers currently focuses on land delivery services while Hyundai Logistics mainly provides its services via air and sea.

Hyundai Logistics posted an operating profit of 34.9 billion won and sales of 1.65 trillion won last year while Lotte Logistics recorded 42.3 billion won in operating profit and 2.89 trillion won in sales. If the figures are simply put together, the potential merger would create a logistics giant that could threaten the country’s No.1 CJ Korea Express Corp that posted an operating profit of 186.6 billion won on sales of 5.06 trillion won last year.

When the would-be merged company goes public within a few years, the company is expected to raise trillions of won that can be used to allow the current retail giant to make aggressive inroads into the logistics market in Asia.

By Son Il-seon and Han Woo-ram

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