Lotte Non-Life Insurance(000400) The calculations of JKL Partners, the largest shareholder, and Shinhan Financial Group, the leading acquisition candidate, are diverging over the sale. With recent acquisition talks between the two sides halted without narrowing the price gap, JKL has shifted toward a public sale. The industry still sees Shinhan Financial Group(055550) as the most likely buyer, as the pool of candidates capable of acquiring Lotte Non-Life Insurance is limited.
According to the financial sector on the 17th, JKL is carrying out preliminary work for a public sale of Lotte Non-Life Insurance. The specific sale schedule has not been decided. JKL had engaged in acquisition talks by selecting Shinhan Financial Group as the preferred bidder, but negotiations recently fell through. The two sides are said to be holding no separate talks at present.
The biggest reason the talks were halted is the sale price. While JKL has expected more than 1 trillion won for Lotte Non-Life Insurance's valuation, the market sees a fair purchase price at 700 billion to 800 billion won. Lotte Non-Life Insurance's current market capitalization is in the 600 billion won range.
Even if it shifts to a public sale, the industry still picks Shinhan Financial Group as the most likely buyer. Korea Investment Holdings(071050) and others are mentioned as potential candidates, but given Lotte Non-Life Insurance's capital situation and the additional funds that would need to be injected after an acquisition, there are not many players that can actually jump into the bidding.
Lotte Non-Life Insurance received conditional approval for its management improvement plan from the Financial Services Commission in May. Accordingly, it must carry out management improvement tasks such as capital raising over the next 1 year and 6 months. As the quality of its capital is weak, with core capital at minus 350.9 billion won at the end of the first quarter this year, the market projects that more than 1 trillion won may be needed to normalize capital.
From Shinhan Financial Group's standpoint, Lotte Non-Life Insurance is an attractive acquisition target. Shinhan Financial Group is considered weak in non-life insurance compared with banking, securities, cards, and life insurance. Its non-life subsidiary Shinhan EZ Non-Life Insurance has assets of only the 300 billion won range. Lotte Non-Life Insurance's total assets are about 14 trillion won, so acquiring it would allow an immediate leap into the mid-tier of the non-life insurance industry.
Some analyze that time is on Shinhan Financial Group's side. When the maturity of the acquisition financing raised to acquire Lotte Non-Life Insurance in 2019 came due, JKL refinanced 465 billion won in Oct. 2024. The refinancing matures next year. The longer the sale is delayed, the higher the financing costs and the later the investment is recovered, making it difficult to postpone the sale for a long time.
A financial industry source said, "From Shinhan Financial Group's standpoint, Lotte Non-Life Insurance is indeed a good acquisition target," but added, "While JKL's burden to sell grows as time passes, Shinhan has no reason to hurry." The person also predicted, "If the public sale does not draw strong interest, they are likely to end up negotiating with Shinhan again."