With the slump in offline retail overlapping with the limits of private equity–style management, the Homeplus Co. crisis is dragging on. As the absence of buyers and worsening management deepen anxiety among stores, partners, and workers, political circles and stakeholders are shifting responsibility. We examine why Homeplus Co. ended up here, what structural problems are blocking a solution, and what choices are needed next. [Editor's note]
At 2 p.m. on the 22nd, a Saturday, the Homeplus Co. Gayang branch in Seoul was quiet. Only store employees passed by now and then. Shelves were sparsely empty. A Gayang branch official said, "On weekends, family customers should be coming, but perhaps because they think we will close, foot traffic is thin."
About eight months have passed since Homeplus Co. filed for corporate rehabilitation with the Seoul Bankruptcy Court on Mar. 4, but without a clear solution, the company's operating results are deteriorating. Although the court in Jun. allowed a prepackaged merger and acquisition (M&A) and extended the deadline for submitting the rehabilitation plan five times, there is no suitable bidder. Harex InfoTech (an AI company) and Snowmad (a real estate developer), which submitted letters of intent to the sale manager Samil PricewaterhouseCoopers on the 31st of last month, are widely seen as unlikely to participate in the main bid. They are loss-making corporations with no retail experience and insufficient financing capacity.
Since there is a high possibility the main bid will not be properly carried out, voices in the capital market industry say other solutions should be discussed. Extending the deadline for the rehabilitation plan again on the grounds of a prepackaged M&A is meaningless.
◇ Homeplus Co., the more it operates, the more corporate value falls
According to the retail industry on the 23rd, Homeplus Co.'s corporate value is falling day by day. Citing a cash crunch, Homeplus Co. failed to pay about 70 billion won in taxes, including the comprehensive real estate tax. Adding unpaid electricity bills from Aug.–Sep., the arrears swell to about 92 billion won. Taxes are an issue, but if arrears in electricity bills persist, power supply becomes difficult, making it impossible to sell fresh food. Its competitiveness as a supermarket also declines.
The accounting view is the same. According to Samil PricewaterhouseCoopers, the sale manager for Homeplus Co., the company's going-concern value is about 2.5 trillion won. This includes plans by Homeplus Co. to cut fixed expenditure by closing stores. But after discussions with political circles, closures have been deferred. A retail industry official said, "Only the closures were deferred, while the function as a retail store has declined, so losses are just growing." Samil PricewaterhouseCoopers initially calculated that if closures and re-entries had proceeded as planned by Homeplus Co., annual savings of 188.2 billion won would have been achieved on an EBITDA basis (the actual cash generation capacity from core operations).
Homeplus Co. has been unable to escape poor performance for years. From the 2021 fiscal year (Mar. each year to Feb. the following year) through last year, it recorded four consecutive years of losses. Last year's revenue was 6.9919 trillion won, up 0.9% from a year earlier, while operating loss was 314.1 billion won, up 57.5%. A retail industry official said, "If opening the sales floor only increases losses, then deciding to close earlier would be rational, but Homeplus Co. is just looking to the authorities, and the authorities are looking only to NongHyup with no answer."
◇ Unemployment is an issue, but this cannot be solved as is
Inside Homeplus Co., there is a clear understanding that there is no buyer as things stand. An internal official familiar with the sale said, "Who would buy Homeplus Co. as is? It needs to be scaled down further and the price lowered. Stores with deferred closures should be shut quickly, and a few more branches should be wound down," while also saying, "It would be better if NongHyup buys Homeplus Co. before that."
The biggest reason there is no buyer for Homeplus Co. is that the center of gravity in retail has shifted from offline to e-commerce (online). Competitors Emart and Lotte Mart are streamlining or reducing their own offline stores. In this situation, there is little reason to acquire Homeplus Co., which has a large offline store network. The second reason is that MBK Partners, the majority shareholder of Homeplus Co., repeatedly used sale-and-leaseback—selling core stores and leasing them back—to recover its investment and repay liability, leaving relatively few attractive assets (owned stores).
A retail industry official said, "As there is no suitable domestic buyer, we sounded out Chinese retailers such as AliExpress and China-backed private equity, but only negative responses came back," adding, "If there is no buyer, we should move on to the next discussion—either break it up and sell or lower the price further." Another official said, "If Homeplus Co. is liquidated, about 20,000 directly employed staff and about 100,000 jobs including partner employees are at stake, so the discussion is not moving to the next stage."
◇ Homeplus Co. looking only to NongHyup
The scenario most desired by Homeplus Co. and MBK Partners is acquisition by the National Agricultural Cooperative Federation. Since pursuing a prepackaged M&A, Homeplus Co. has consistently promoted the synergies it could create with the National Agricultural Cooperative Federation. A prime argument is that if NongHyup acquires Homeplus Co., it can secure "Hanaro Mart," the farmers' direct sales distribution network, on a nationwide scale. They also believe that once debt is restructured and Korea Development Bank, a state-run financial institution, steps in to support the sale or acquisition financing, things will proceed much more smoothly.
An internal official familiar with the sale of Homeplus Co. said, "At the last National Assembly audit, National Agricultural Cooperative Federation President Kang Ho-dong expressed a negative view on acquiring Homeplus Co., but we are continuing to communicate," adding, "The problem will be solved when the prime minister's office or the presidential office moves." At the National Assembly audit in Oct., National Agricultural Cooperative Federation President Kang Ho-dong said, "We are well aware of Homeplus Co.'s difficulties, but NongHyup's retail division posts losses of 40 billion to 60 billion won every year and is in a tough situation," adding, "In a situation where we are already burdened with a load that is hard to bear, we cannot take on someone else's load."
Homeplus Co. believes that President Kang Ho-dong's view differs from voices on the ground. Rep. Song Ok-ju of the Democratic Party of Korea (Hwaseong-si Gap, Gyeonggi) conducted a survey through the National Agricultural Cooperative Federation of professional managers (managing directors and executive directors) of local agricultural and livestock cooperatives from Sep. 24 to Oct. 17, and 33% of 166 local agricultural and livestock cooperatives responded that they were "very positive" about expanding into large-scale urban hypermarket businesses such as the agricultural economic holding's acquisition of Homeplus Co., while 35% responded "positive." This is also why there is internal belief at Homeplus Co. that with time NongHyup will eventually acquire Homeplus Co. After internal persuasion, there are expectations that President Kang Ho-dong of the National Agricultural Cooperative Federation will ultimately shift toward acquiring Homeplus Co.
◇ "More drawbacks than benefits to a NongHyup acquisition... it should be resolved by market logic"
But there are also opposing views to such expectations. Homeplus Co. is not a national key industry like HMM, critics say, so it is inappropriate for a state-run financial institution to provide acquisition financing and sale support. There are also claims that having NongHyup acquire Homeplus Co. would bring more drawbacks than benefits.
Seo Yong-gu, a professor in the business administration department at Sookmyung Women's University, said, "If an organization (NongHyup) whose own problems are not resolved proceeds with an acquisition, it will eventually become insolvent again or only extend its lifespan, creating side effects." A capital market industry official who requested anonymity said, "Even if Homeplus Co. disappears, nothing major will happen. For now, the best course is to efficiently reallocate inefficient capital, and ultimately it should be resolved by market logic," adding, "The issue of 100,000 unemployed people is more effectively addressed by teaching new technologies and providing job training."