Lotte Shopping Co Ltd acquires HiMart for $110 million

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SEOUL—South Korea's Lotte Shopping Co. said Friday it will buy a 65.25% controlling stake in local electronics discount retailer Himart Co. for 1.248 trillion won ($1.1 billion), as the country's largest department store operator by revenue seeks to strengthen its electronics retail business.

This is Lotte Shopping's largest acquisition since it bought GS Retail Co.'s department store and discount store businesses for 1.3 trillion won in 2010. Lotte Shopping, an affiliate of South Korean conglomerate Lotte Group, was named Himart's preferred bidder earlier this week.

Lotte Shopping said in a regulatory filing it expects the deal to close around September or October

A spokesman for Lotte Group wasn't immediately able to say how the company will fund the Himart stake purchase, though he said it currently has "sufficient cash flow" needed for the transaction.

Meanwhile, analysts said significant operational synergies are expected, as Himart will be able to benefit from Lotte's strong network and sales channels both at home and abroad, while Lotte will be able to boost its relatively weak presence in the discount electronics segment.

"It's a small addition to an enormously big company," but it's still a plus as the move will remove any concerns about Lotte Shopping's weakness in its electronics-product portfolio, said Woori Investment & Securities analyst Park Gene.

Mr. Park said he expects Lotte Shopping's consolidated revenue for this year to increase about 10% with the acquisition. Lotte Shopping's annual revenue was 22.98 trillion won last year.

Private-equity fund MBK Partners had reportedly offered 1.3 trillion won for the stake and wanted longer to negotiate, but Himart shareholders earlier this week ended its status as preferred bidder, choosing to start negotiations with Lotte Shopping instead.

Analysts say it's better for Himart's long-term corporate value to have a strategic investor like Lotte Shopping with a relevant background, rather than a financial investor like MBK Partners, even if the deal is closed at a lower price.

Himart shares had fallen more than 7% on the day MBK Partners was named the preferred bidder for Himart last month, on investor concerns it wasn't the most suitable buyer.

Friday afternoon, Himart shares were down 0.2% at 58,200 won and Lotte Shopping shares were 2.2% lower at 316,000 won, in line with declines in the broader market. The benchmark stock index was off 1.1%.

The Himart stake up for sale is collectively owned by Eugene Corp., the company's former chairman Sun Jong-koo, and others.