Update: Shinsegae on its own to go after eBay Korea as Naver backs out

[Graphics by Song Ji-yoon]

(Updated with Naver confirmation)

South Korea’s retail giant Shinsegae Group will seek solo acquisition of a majority stake in the country’s No. 3 e-commerce player eBay Korea as its coalition partner and industry No. 1 Naver Corp. backed out on antitrust issue.

Naver in a disclosure Tuesday said it had mulled to join the bid through a stake in the consortium, but decided against it.

According to multiple sources from the investment bank industry on Monday, Shinsegae Group representing Emart is in de facto final talks with the head office of eBay in the United States for its 80 percent ownership in its Korean operations at around 3.5 trillion won ($3.1 billion).

The U.S. company is proceeding individual negotiations with candidates for a progressive deal.

Naver is said to have had second thoughts about co-bidding with Emart, grocery unit of Shinsegae, on antitrust review on the M&A.

Shares of Naver fell 1.51 percent to close at 391,000 won, while those of Emart ended 0.63 percent higher at 160,500 won.

The Fair Trade Commission had approved German Delivery Hero’s acquisition of Baedal Minjok, No. 1 app-based food delivery platform, on condition it divests No. 2 Yogiyo.

Naver commands 18 percent of the e-commerce market, eBay 12 percent after Coupang’s 13 percent. SSG.com under Shinsegae takes up about 4 percent.

The three would make up about 34 percent of online shopping market. The merger is not subject to disapproval as the FTC regulation prohibits integration if the market share exceeds 50 percent or 75 percent for industry top three.

Still, the M&A could be attached with multiple conditions as it had been the case for eBay Korea when it acquired Gmarket in 2009.

Naver also did not necessarily have to go that far to bring eBay Korea onboard as it is already closely in business connection with the platform rival.

Park Jong-dae, researcher at Hana Financial Investment Co., said that eBay Korea relies highly on Naver Shop-in-Shop for revenue.

Shinsegae Group, on the other hand, is desperate to build economies of scale, and has ammunitions to buy out eBay Korea on its own.

Shinsegae Group has 44 trillion won in assets, largely comprised of real estate. It is seeking to switch brick-and-mortar assets to digital wealth like Coupang Inc., which became a company with a market cap of $68.3 billion through initial public offering on New York Stock Exchange.

It is said to have enough supporter from the financial sector.

Shinsegae Group has been approached by multiple lenders and brokerages to back the acquisition. Investment bank sources estimated that the retail giant will be able to finance 1.2 trillion won from banks.

It will be using property sale funds for the remaining 2.3 trillion won.

Emart has secured 1.5 trillion won in additional cash through its sale of a property asset early this year. It plans to secure additional acquisition funds by issuing corporate debt and receiving loans secured on Hanam Starfield.

Ebay is expected to make a decision next month. Its choice can differ since Shinsegae is not in exclusive talks.

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