Lotte Card is starting the process of sending teaser letters to potential acquirers, marking the official beginning of its search for a new owner. Financial holding companies such as KB Financial Group and Hana Financial Group are mentioned as strong acquirers; however, due to unfavorable market conditions, significant challenges are anticipated in finding a new owner.
According to investment banking industry sources on the 20th, UBS, the sale advisor for Lotte Card, is reported to be in the process of sending teaser letters to potential acquirers. Industry insiders believe that KB Financial Group and Hana Financial Group will receive the teaser letters.
The dominant analysis in the financial sector is that the outcome of this sale depends on the choices made by large financial holding companies. This is because large corporate-affiliated card companies or private equity funds (PEFs) are unlikely to acquire the credit card company. However, KB Financial Group and Hana Financial Group, which are considered strong acquirers, have recently been conservative regarding mergers and acquisitions (M&A). Hana Financial Group attempted to acquire KDB Life in 2023 but abandoned the effort at the last minute, and KB Financial Group's acquisition of Prudential Life (now KB Life) in 2020 remains its last M&A.
Ham Young-joo, chairman of Hana Financial Group, noted in this year's New Year address that 'M&A without a foundation for self-sufficiency is unnecessary.' Yang Jong-hee, chairman of KB Financial Group, also decided to focus on reorganizing the existing portfolio rather than pursuing M&A this year.
There are significant differences in opinions on the sale price between MBK Partners, the largest shareholder of Lotte Card, and the potential acquirers. The first sale attempt in 2022 ended without success due to disagreements between potential buyers and the sale price. While the parties deny it, it is known that MBK Partners wanted around 3 trillion won at that time. MBK Partners formed a consortium in 2019 to acquire a 79.83% stake in Lotte Card for 1.381 trillion won.
In the investment banking sector, many analyses suggest that receiving 3 trillion won will be difficult due to poor market conditions. Lotte Card's cumulative net profit for the third quarter last year was 102.5 billion won, a 72% decline compared to the same period the previous year (365.7 billion won). Even excluding one-time disposal profits from the sale of its subsidiary Lokomobility in the first half of last year, net profit still dropped by 38.9%. The decline in performance, combined with a reduction in card fees and sluggish domestic demand, makes it unlikely that MBK Partners will be able to receive the desired price.
MBK Partners is also said to be preparing for a long-term battle. They refinanced 640 billion won of acquisition finance received at the time of acquiring Lotte Card in November last year. MBK Partners raised a total of 1.077 trillion won with a five-year term to repay acquisition finance and for investor distribution, effectively buying sufficient time for the sale.
A financial sector official stated, 'Hana Financial Group still shows a willingness to acquire an insurance company, and the expansion of the card company portfolio seems to be a lower priority,' adding that 'it remains uncertain whether KB Financial Group, which has completed the expansion of its life insurance portfolio, will turn its attention to credit card expansion.'