Lotte Shopping tapped as the strategic partner for IMM PE's Hanssem buyout

South Korea’s retail giant Lotte Shopping Co. has been chosen by IMM Private Equity (IMM PE) over industrial and interior material giant LX Hausys as the fund’s strategic partner for an estimated $1 billion buyout of the country’s largest furniture and home furnishing company Hanssem Co.

IMM PE made its choice official on Friday.

Although details of the terms have not been revealed, Lotte will invest in a fund created by IMM PE for the acquisition of Hanssem estimated from 1.3 trillion won ($1.1 billion) to 1.7 trillion won with a priority option to buy over the controlling stake should IMM PE decides to cash out of the furniture company.

Lotte Shopping on Thursday disclosed that it would invest 299.5 billion won in a fund IMM PE fund devoted to the Hanssem buyout.

Lotte Shopping, operator of department stores and discount stores under Lotte Group, plans to seek synergy through strategic partnership with Hanssem. The agreement with IMM PE will give Lotte Shopping the right of first refusal, placing it in a favorable position to acquire management control of Hanssem later.

“We expect the investment to help enhance product competitiveness, plan differentiated space, and develop contents, while also create synergy as a group by partnering with construction and Hi-mart affiliates,” a Lotte Shopping official said.

Lotte Shopping beat out formidable contender LX Hausys for the Hanssem buyout. The two companies vied with offering of 300 billion won in the acquisition.

LX Hausys had hoped to seek business synergy to grow into a total interior company. LX Hausys manufacturers and installs interior materials and having Hanssem under its arm would have heped its construction materials business.

IMM PE is expected to sign a stock purchase agreement with Hanssem next week. IMM PE inked a memorandum of understanding with Hanssem to buy 30.21 percent ownership plus management right in July. The stake will come from founder and honorary chairman Cho Chang-geol and six individuals of special relations.

Hanssem offered to sell the stake at 220,000 won apiece – to total 1.5 trillion won. IMM PE is currently conducting due diligence on Hanssem.

When choosing a strategic investor, IMM PE is known to have considered which partner would be more favorable in terms of credit evaluation when Hanssem seeks acquisition funds from financial institutions.

Lotte Group had made seldom appearance in M&A scene for a while. In 2015, it bought KT Rental for over 1 trillion won and Samsung Group’s chemical unit for over 3 trillion won. Since late last year, however, it has returned to the scene as strategic investor to a private equity fund buyout.

Last year, Lotte Group joined hands with Skylake Equity Partners and invested in Solus Advanced Materials as a strategic partner. The conglomerate is expected to be given priority to buy Solus Advanced Materials shares when Skylake Equity Partners decide to sell its ownership.

On Friday, Lotte Shopping shares gained 1.42 percent to close at 107,500 won. Hanssem shares lost 5.26 percent to end at 117,000 won.

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