Lotte hesitating over bid to acquire Iljin Materials and here’s why

Lotte Group is reportedly having second thoughts about its bid to acquire Iljin Materials Co. Ltd. The multi-national conglomerate headquartered in Songpa-gu, Seoul, seems to have grown indecisive about whether to go ahead with the acquisition or not.

According to The Korea Times, industry officials said that Lotte Group is hesitating now because of Iljin Materials' management's unyielding stance regarding the valuation of the company, which is currently the second largest copper foil producer in the country and the fourth in the world as of June.

The largest shareholder of Iljin Materials is Huh Jae Yyeong, the second oldest son of Iljin Group's chairman Huh Chin Kyu. the former is reportedly demanding that potential buyers to pay KRW3 trillion or about $2.2 billion as the minimum for the 53.3% stake in the company that is up for sale. This large share in Iljin Materials is also owned by Chin Kyu.

As opposed to the chairman's son's demand, the petrochemical products arm of the Lotte Group shared that it has only offered less than KRW2.5 trillion for the acquisition. It was noted that when Iljin Materials put the company up for sale three months ago, its market cap at that time was about KRW4.3 trillion. However, its sales have been declining recently due to the very strict COVID-19 lockdown measures in China.

In addition, the falling prices of copper have also affected the company's sales. As a result, these issues have dragged Iljin Materials' market cap down to below KRW3.3 trillion this month.

"Iljin Materials' second-quarter earnings fell short of the market consensus," Chang Jung Hoon, an analyst at Samsung Securities said in a statement. "Its revenue from copper foil fell four percent from the previous year due to the falling copper price and decreasing sales in the wake of the global supply chain disruptions."

Due to the uncertainties in outlook, industry observers opined that Huh Chin Kyu's demand for Lotte Chemical to pay KRW3 trillion for a 53.3% stake is not reasonable. Even if the premium is taken into account for managerial rights in Iljin Materials, the amount is still considered unacceptable.

Lotte Chemical was the only main bidder for the acquisition of Iljin Materials after Bain Capital dropped out of the race due to obstacles in raising funds for the bid. The Korea Herald reported last week that the company has become the sole bidder in the sale of the copper foil maker.

Then again, despite the issue with the valuation, it was said that it may be hard for Lotte Chemical to give up on the acquisition as Lotte Group has started focusing more on expanding its electric vehicle battery materials production business, which is more profitable compared to its retail unit.