Homeplus Co., a South Korean hypermarket chain operator undergoing court-led rehabilitation, has been placed on open auction after failing to attract a buyer through a stalking-horse bid.
The company, wholly owned by private equity firm MBK Partners, and its sale manager Samil PwC said on Oct. 2 that they will receive bids by Oct. 31.
The public auction will likely determine whether Homeplus can avert liquidation or asset breakup. The retailer suffers cash shortages so severe that it strugges to cover basic expenses like electricity bills, according to investment banking sources.
A recent study indicates the retailer’s liquidation value exceeds its valuation as a going concern.
However, the Seoul Bankruptcy Court is pushing forward with the M&A process in an effort to prevent massive job losses and minimize disruption to the company’s supplier network.
During the stalking-horse phase, no investor agreed to a conditional deal. Analysts attribute the lack of interest to a weak brick-and-mortar retail outlook and limited synergy for potential buyers.
The stalking-horse process allows a troubled company to secure a preliminary deal with a selected bidder, known as the stalking-horse bidder, before inviting other bidders.
Unless higher bids emerge, the stalking-horse bidder finalizes the acquisition under the pre-agreed terms.
To make Homeplus a more appealing target, investment bankers any buyer would likely require support from state-run lenders to refinance about 1.3 trillion won ($906 million) in loans owed to Meritz Financial Group Inc.
Easing the terms on Homeplus’s 582.6 billion won in redeemable convertible preferred shares, held by the National Pension Service (NPS). would also be key to reduce the financial burden for an acquirer.
The Homeplus fiasco is drawing close attention from both political and labor arenas. The ruling Democratic Party urges MBK to draw up measures to normalize the retailer’ operations.
However, the government finds itself in a bind. Offering financial support to ease the sale could spark backlash as it may be seen as aiding MBK’s long-delayed exit from the troubled company.
Last month, MBK Partners pledged 200 billion won in fresh funding for Homeplus.
This comes on top of a previously pledged 300 billion won, including a personal contribution from Michael ByungJu Kim, MBK’s founder and chairman.
Still, industry observers doubt a private buyer will emerge.
“Without a government-led framework, it’s hard to see anyone stepping up,” said one investment banker.
By Eun-Kyung Song
norae@hankyung.com
Yeonhee Kim edited this article.
