Lotte Card Co. is expected to be up for grabs in the first half of next year in a second sale attempt by its largest shareholder MBK Partners, a North Asia-focused private equity firm, about two years after its first divestment bid failed.
According to sources in the investment banking and credit card industries on Monday, MBK Partners has picked UBS as its advisory firm to lead the sale of Lotte Card.
“MBK Partners is very determined to sell Lotte Card,” said an official from the IB industry who declined to be named. “After the year-end leadership reshuffle ends, Lotte Card’s sale process is expected to pick up speed in the first half of next year.”
This is MBK Partners’ second bid to sell Korea’s fifth-largest card issuer, whose value is currently estimated to be about 2 trillion won ($1.4 billion).
In 2022, MBK put Lotte Card up for sale three years after its takeover, with an asking price of over 3 trillion won but the sale fell through due to its high price tag.
Given Lotte Card’s over 9.5 million card holders, its sale is expected to upend the Korean credit card market tightly controlled by big five players, industry observers said.
MBK-WOORI CONSORTIUM WITH A 80% STAKE
In 2019, MBK Partners acquired Lotte Card, which was put up for sale by its former owner Lotte Group, which was seeking to transform into a holding company at that time. According to Korean law, a non-financial holding company is banned from owning both non-financial and financial subsidiaries.
The Korean PE firm formed a consortium with Woori Bank to own the largest stake of 79.83% in Lotte Card for 1.75 trillion won.
MBK Partners holds 59.8% through Korea Retail Card Holdings Inc., a special purpose company set up by the PE firm, and Woori Bank holds 20%. The remaining 20% is held by Lotte Shopping Co.
Since its acquisition, MBK restructured Lotte Card’s business and applied digital technology to its business and operation processes, alongside aggressive marketing efforts.
Lotte Card’s net profit jumped nearly fivefold to 241.4 billion won in 2021 from 51.7 billion won in 2019. Its total equity value, a yardstick for a credit card firm’s valuation, stood at 2.4 trillion won at the end of 2021.
After the successful restructuring, MBK looked for a new owner for its stake in hopes of fetching over 3 trillion won in 2022 but the sale bid was called off.
KB AND HANA AS STRONG CONTENDERS
With a strong determination to exit, MBK Partners is said to be willing to sell Lotte Card at a lower price compared to the asking price two years ago.
Lotte Card’s assets nearly doubled to 24.43 trillion won as of September 2024 from 14.79 trillion won at the end of 2020.
Lotte Card boasts more than 9.5 million card holders as of October this year, the fifth-largest trailing behind its bigger rivals Shinhan Card Co. with 14.39 million, Samsung Card Co. with 13.04 million, Hyundai Card Co. with 12.49 million and KB Kookmin Card Co. with 12.39 million.
It is also No. 5 issuer with a 10.5% share in the local credit card payment market in terms of total transaction value.
“Of all financial companies up for grabs now, Lotte Card is the only financial institution with more than a 10% market share,” said an official from the Korean financial industry.
KB and Hana are floated as strong candidates for Lotte Card, according to industry observers.
With Lotte Card under its wings, the country’s fourth-largest issuer KB Kookmin Card could rise to the country’s No. 1 card company, beating the current leader Shinhan Card.
Lotter Card is also expected to allow KB Financial Group Inc. to widen the gap significantly with Shinhan Financial Group Co. to become Korea’s unrivaled No. 1 financial holding firm.
For this reason, Shinhan Financial is also expected to consider snatching Lotte Card to cement its leadership.
Hana Financial Group, Korea’s third-largest financial group with a weak presence in the Korean non-banking financial market, is expected to re-attempt to grab Lotte Card.
Hana competed against the MBK-Woori consortium for Lotte Card in 2019 and joined a race for Lotte Card again in 2022 when MBK tried to sell it. But both bids failed. Woori Financial Group is also considered another potential bidder.
MBK Partners is said to be mulling selling its stake in Lotte Card jointly with Woori Bank and Lotte Shopping’s combined 40% stake.
Lotte Shopping has tag-along rights to participate in Lotte Card sale initiated by the biggest shareholder MBK Partners.
Lotte Shopping’s stake sale in Lotte Card would help ease liquidity concerns about its parent Lotte Group.
By Hyeong-Gyo Seo, Mi-Hyun Jo and Jun-Ho Cha
seogyo@hankyung.com
Sookyung Seo edited this article.
