Min Byeong-cheol, Korea country head at Affinity Equity Partners (hereafter Affinity), is leaving the firm. Min has been with Affinity for about 20 years, but industry officials said Min stepped down, taking responsibility after the recent acquisition of Lotte Rental hit a snag.
According to the investment banking (IB) industry on the 25th, Min recently informed the company of an intention to resign. However, an Affinity official only said, "Min is currently on vacation."
According to IB industry officials, Min was reprimanded by Affinity Chairman K.Y. Tang, who recently visited Korea. The reason was that the wrap-up of the Lotte Rental acquisition was not smooth.
On Jan. 26, the Korea Fair Trade Commission (FTC) officially announced it would block the business combination of Lotte Rental and SK Rent-a-Car. Lotte Rental is the No. 1 player in the domestic rental car market, and SK Rent-a-Car is No. 2, with Affinity as its largest shareholder.
In response, Lotte Group is reportedly reviewing various internal options on how to respond to the FTC decision. It replaced its existing outside counsel, BAE, KIM & LEE LLC, and is responding with Sejong's antitrust group.
In the industry, some say Lotte and Affinity ended up here after pushing new share issuance and other steps that delayed the transaction. In late Feb. last year, Lotte Rental simultaneously pursued a deal to transfer roughly 56% management-control equity held by Hotel Lotte and Busan Lotte Hotel to Affinity and a third-party paid-in capital increase allocated to a special-purpose company (SPC) affiliated with Affinity.
Then, as backlash grew among ordinary shareholders who said, "While transferring management-control equity at a high price, the new shares are being issued at an excessively low price," the capital increase plan was halted entirely, and in the meantime both the administration and the chair of the Korea Fair Trade Commission changed, turning the business combination review climate more conservative.
For now, Lotte Group, together with Affinity, is strongly considering filing an objection with the FTC while submitting remedy measures. Because of this, there was speculation Affinity would sell SK Rent-a-Car, which it has already acquired, and focus on completing the acquisition of Lotte Rental, the market leader, but IB industry officials said that, too, lacks feasibility.
A senior official at a private equity (PE) firm said, "Affinity already acquired SK Rent-a-Car at a fairly high price," adding, "Even if it were put on the market now, potential buyers are well aware of Affinity's situation, so they would likely call a much lower price." The official also said, "If Affinity rushes to sell while swallowing that level of loss, there will be significant pushback from the Affinity fund limited partners (LPs)."
Within Lotte Group as well, there is reportedly considerable sentiment to look for a different buyer instead of Affinity. However, as the price Affinity proposed is so high, there is also a negative outlook that it will not be easy to find a buyer willing to purchase Lotte Rental at that valuation.
Meanwhile, Affinity is expected to be led for the time being by partners Kim Hyeong-jun and Kim Ui-cheol. An Affinity official said, "We are operating all projects and pending issues without a hitch," adding, "The Lotte Rental matter is also being handled normally in consultation with the investment review committee, so there is no problem at all with business continuity."