The spinoff of Shinsegae Group's big-box mart and department store institutional sector is gaining traction. A financial investor (FI) has exited SSG.com, a key affiliate jointly owned by E-MART and Shinsegae Co. E-MART is led by Shinsegae Group Chairman Chung Yong-jin, while Shinsegae Co. is led by his sister, Chair Chung Yoo-kyung.
On the 12th, according to the retail industry, Shinsegae Group disclosed the previous day that it would jointly acquire a 30% equity stake in Olympus Jeil No. 1, a financial investor in SSG.com, for about 1.271 trillion won. As a result, SSG.com's governance has been reorganized under Shinsegae Group ownership. With the external financial investor gone, observers say the previously tangled decision-making structure has been simplified. The biggest gain is reducing deal variables. In the process of reshaping the equity structure, discussions on exit terms or price could become complex, but this acquisition has streamlined matters so that only E-MART and Shinsegae Co. need to come to the negotiating table.
However, additional equity cleanup is needed before the spinoff is complete. Under the Fair Trade Act, to be recognized as independently managed by relatives, cross-holdings must be reduced to under 10% for unlisted companies. Whether E-MART or Shinsegae Co. takes SSG.com, the other side's equity must be further unwound. Given SSG.com's equity split of 65.1% for E-MART and 34.9% for Shinsegae Co., the funds required if E-MART takes SSG.com are about 1 trillion won, while if Shinsegae Co. takes it, the amount is in the 2 trillion won range.
For now, the retail industry sees a high likelihood that E-MART will take SSG.com. That is because the synergy is greater when combined with SSG.com, considering E-MART's fresh-food-centered business structure and existing logistics and distribution infrastructure. The key, however, is the payment method. A cash-only acquisition would be burdensome, so the industry is also discussing a possible real estate asset exchange. Representative options include real estate development assets held by Shinsegae Engineering & Construction, classified as an E-MART subsidiary, or other affiliate real estate assets. A retail industry official said, "There is growing talk of a swap structure that adds cash to real estate assets."
Some also cite the equity in Shinsegae Uijeongbu Station as a strategic card. Shinsegae Uijeongbu Station is a Shinsegae affiliate complex development asset. Several affiliates share the equity. Shinsegae Engineering & Construction holds about 20% of the equity in Shinsegae Uijeongbu Station.
A real estate industry official said, "Even with a generous valuation, it would be hard to cover the value of the SSG.com equity with only the Shinsegae Uijeongbu Station stake," adding, "Shinsegae Uijeongbu Station ultimately needs to be resolved as well, so a future agreement will likely take the form of cash added to several assets." A retail industry official said, "The FI exit has clarified the structure, but valuing assets and designing the swap structure for the spinoff is the real game," adding, "It has effectively moved into the stage of strategic negotiations."