Lotte to Buy Samsung Chemicals Businesses

02.11.2015 -

In a move to expand the share of chemicals in its corporate portfolio, South Korea’s Lotte Group is spending 2.8 trillion won ($2.45 billion) to buy part of Samsung’s petrochemical business.

Terms foresee the Lotte Chemical subsidiary of the hotel, retail and chemicals conglomerate paying 465 billion won for a 31.5% stake in Samsung Fine Chemicals, including 49% of the joint venture Samsung BP Chemicals. It will also buy 90% of Samsung SDI’s chemical unit for 2.33 trillion won, taking the remaining 10% over a three-year period.

As part of the biggest deal in the history of the Korean chemical industry, due to be completed in the first half of 2016, Lotte Group will spin off the chemical business into a new company, with effect from February.

Lotte Chemical, which specializes in basic petrochemical materials and synthetic fibers, said it has been on the lookout for future-oriented chemical businesses and products to create synergies with existing products. The takeover of the Samsung business is designed to boost its competitiveness in plastics such as polycarbonate, ABS and polystyrene.

Samsung is shedding assets it regards as less profitable as Jay Y. Lee gradually takes control from his ailing father, Chairman Lee Kun-hee. In April of this year, the Korean group sold stakes in four affiliates active in the defense and chemical sectors to affiliates of the Korean Hanwha Group for 1.9 trillion won. Reports said the company was raising money to pay inheritance taxes that could come to around 6 trillion won.

The financial markets were not convinced that the deal with Samsung is the right one for Lotte. As a consequence, the company’s shares plunged by nearly 14% on the news.

Some analysts said the benefits of diversification might be wiped out by the extremely high price Lotte was paying. One, Hana Financial Investment, said the maximum value of the assets to be acquired should not exceed 2 trillion won (about $1.75 billion).

“Lotte Chemical should be investing some 4 trillion won through 2018,” Lee Eung-joo, an analyst at Shinhan Investment, told the Korean news daily Korean Joonganyg Daily, adding: ”If the company is spending 3 trillion won for the acquisitions on top of that investment, it’s going to be under tremendous financial pressure.” Critics of the Lotte-Samsung deal also doubted the future attractiveness of the plastics materials being acquired.

Lotte already has budgeted an estimated 2.9 trillion won for a shale gas to petrochemicals and plastics complex in the US state of Louisiana, in partnership with US chemical producer Axiall.

The plan to acquire the Samsung assets is said to have been hatched by Lotte Chairman Shin Dong-bin, who is seen as trying to strengthen his hand in an ongoing dispute within the family-owned group.

Samsung SDI said proceeds from the sale of the chemicals units will be used to strengthen its business with batteries for electric cars, in which it hopes to achieve a dominant position in the global market. The company acknowledged difficulties in remaining cost-competitive in the chemicals sector.

In early October, the Samsung affiliate completed construction of an electric car battery factory at Xi’an, China, to supply carmakers including BMW and China’s Yutong and Foton.