LG Household & Health Care (051900) is selling Haitai htb, formerly Haitai Beverage, for 300 billion won. The move is part of a strategy to divest non-core subsidiaries and secure investment funds to strengthen the competitiveness of its beauty business.
According to investment banking (IB) industry sources on Tuesday, Samjong KPMG, the lead manager for LG H&H's sale of Haitai htb, recently sent teaser letters to potential buyers. The company is reportedly gauging acquisition interest primarily from financial investors (FIs) with strengths in the food and beverage (F&B) sector.
LG H&H is seeking more than 300 billion won for Haitai htb. The company posted revenue of 374.1 billion won and an operating loss of 10.1 billion won last year. Because Haitai htb recorded a loss, its corporate value was assessed based on the price-to-book ratio (PBR). The asset value of Haitai htb, including liabilities, currently stands at approximately 400 billion won.
Haitai htb produces and sells fruit and vegetable beverages including Galamandeun Bae, Podo Bongbong, and Coco Palm. LG H&H acquired a 100% stake in the company in 2011. In 2016, it changed its name to Haitai htb to expand into health functional foods and other businesses beyond beverages.
LG H&H is pursuing the sale of Haitai htb to strengthen the competitiveness of its beauty business by streamlining non-core divisions. Along with Amorepacific (090430), LG H&H has long been a traditional powerhouse in cosmetics, but it is seen as falling behind emerging beauty companies such as APR (278470) and Goodai Global as indie brands have become mainstream in the market. CEO Lee Sun-joo, who took office in October last year as the rescue pitcher for the beauty business, succeeded in turning the unit profitable in the first quarter of this year, but opinions are divided in the securities industry over whether this performance will lead to a sustained rebound. Accordingly, LG H&H is expected to pursue additional mergers and acquisitions (M&A) in the beauty sector after selling its F&B subsidiaries.
According to IB industry sources on Tuesday, LG H&H has been steadily reviewing portfolio rebalancing measures for its F&B subsidiaries since last year. At the time, several affiliates including Haitai htb and Coca-Cola were on the list of sale candidates, and with the decision to sell Haitai htb, the company has now begun a full-scale restructuring.
LG H&H is sounding out the sale primarily with financial investors (FIs) that have a track record in the F&B sector. While proposing an asking price in the 300 billion won range, LG H&H appears to be focused on closing the deal rather than securing a high price. "The F&B sector sees rapid changes in trends, and there are many assets currently on the market," an IB industry official said. "Whether the sale succeeds will depend on how investors view Haitai htb's growth potential."
LG H&H is expected to pursue M&A in the beauty sector after disposing of its F&B affiliates and securing funds. In this context, the company recently halted its review of an acquisition of skincare brand Torriden. As of the end of the first quarter, LG H&H's cash and cash equivalents on a separate basis stood at 595.9 billion won, and the company reportedly felt burdened by Torriden's price tag, which was cited at around 500 billion won. Securing additional funds through subsidiary sales was reportedly prioritized.
The market expects LG H&H to focus on strengthening its beauty competitiveness through two approaches: organic brand growth and M&A. Through last year, LG H&H's beauty revenue had been cut in half over five years, while global competition from K-beauty brands such as APR has intensified. The beauty business, which had been in a slump, has been improving since CEO Lee took office. Lee is a cosmetics marketing expert who boosted sales of the U.S. brand Kiehl's at L'Oreal Korea before leading the U.S. expansion of mask pack brand Mediheal.
LG H&H posted consolidated first-quarter revenue of 1.5766 trillion won and operating profit of 107.8 billion won, succeeding in a rebound. While these figures represent declines of 7.1% and 24.3%, respectively, from the first quarter of last year, the swing back to profit from the company's first-ever operating loss in the fourth quarter of last year carries significant meaning. "While LG H&H's first-quarter results have improved, it is true that its earnings trajectory remains weak compared with other beauty companies," a beauty industry official said.
In the beauty segment, the company posted first-quarter revenue of 771.1 billion won and operating profit of 38.6 billion won, far exceeding market expectations. Although LG H&H is working to reduce its reliance on China and expand U.S. sales, the market cites the turnaround of its China subsidiary as the main factor behind the earnings surprise. "The China subsidiary, the main channel for cosmetics, has been alternating between large losses and earnings improvements," said Bae Song-yi, an analyst at Mirae Asset Securities. "Momentum will be delayed until earnings visibility is restored."
