Lotte Group is halting talks with global private equity firm Affinity Equity Partners over the approximately 1.6 trillion won sale of Lotte Rental (089860), after concluding that closing the deal had become virtually impossible following the Korea Fair Trade Commission's decision to block Affinity's acquisition.
"The two parties failed to reach a final agreement on various matters related to the transaction," Lotte Group said Wednesday. As a result, Lotte Group's sale discussions for Lotte Rental return to square one, one year and two months after they began in March last year.
The direct trigger for the termination was the Fair Trade Commission's move in January to block Affinity's acquisition of Lotte Rental. In March last year, Lotte Group signed a stock purchase agreement with Affinity to sell a 56.2% stake in Lotte Rental for 1.5728 trillion won, as part of efforts to realign its portfolio around core businesses. Affinity, which already owned SK Rent-a-Car, the industry's No. 2 player, sought to acquire Lotte Rental, the largest rental car company in Korea. However, the FTC disapproved the business combination in January, judging that the combined long-term rental car market share of more than 38% could seriously restrict competition.
Affinity reportedly considered selling SK Rent-a-Car as a remedy but ultimately failed to find a workable solution. "After receiving the review results from the Fair Trade Commission, we continued discussions with Affinity Equity Partners, but we determined that pursuing the transaction further was no longer feasible," Lotte said.
Lotte Group plans to continue pursuing the sale of Lotte Rental through discussions with various potential investors. The group is targeting a closure within the year, citing Lotte Rental's solid earnings and growth momentum.
Lotte Rental posted revenue of 2.9188 trillion won and net profit of 126.7 billion won last year, up 4.5% and 23.4% from the previous year, respectively. In the first quarter of this year, revenue grew 6.6% to 730.9 billion won, marking a record high for any first quarter. Net profit also rose 1.6% year-on-year to 30.3 billion won.
"As we strengthen the competitiveness of our core business and our used-car B2C business and new mobility ventures begin to deliver results in earnest, we expect corporate value to continue rising," Lotte Group said. "Building on the recent overall improvement in group performance, we plan to strengthen financial soundness and continue advancing our business portfolio."
