Lotte Shopping, which operates Lotte Mart in Korea, acquired ‘Times,’ a large discount store chain in China, for a purchase price of KRW 750 billion. Times, which is listed in the Hong Kong Stock Exchange, operates a total of 65 stores (consisting of 53 large discount stores and 12 supermarkets) in Shanghai and other areas of the Hwadung Region of China. The takeover of Times by Lotte Mart makes it to the largest Korean distributor with a total of 148 stores, including 65 stores in Korea and 83 stores abroad, which breaks down into 63 in China, 19 in Indonesia and 1 in Vietnam.

The takeover, which is the largest M&A of a Chinese company by any Korean company, draws particular attention from the corporate and legal circles, considering that Lotte Shopping has become the first Korean company to have ever obtained an M&A approval from the Chinese authorities through the strict business combination reporting system under the notorious Anti-Monopoly Law of China.

◇ Maximization of synergy effects through distribution of roles between the M&A team and China team within Shin & Kim: The successful completion of such scale of M&A, which involves a complicated process, is praised as a feat accompanied by the adroit cooperation between the M&A team and China team within Shin & Kim.

Shin & Kim, who provided legal advice for the above M&A, brought the project to a success with local law firms in Hong Kong and China. Playing active roles in the M&A deal on the Shin & Kim side were Beomsu Kim, Esq. well-known for his expertise in international transactions, Yong Won Choi, Esq. based in the Beijing office of Shin & Kim, Seong Hoon Yi, Esq., an M&A specialist, and Myong Hyon (Brandon) Ryu, Esq. and Jiwon Kang, Esq., who formed part of the working group for the M&A deal.

It is particularly noteworthy that the shares of Times, a parent company listed in Hong Kong, were acquired through a discretionary tender offer under the laws of Hong Kong. This type of tender offer required considerable legal analysis of the relevant provisions of the local securities laws and regulations and various other substantial issues incidental to the tender offer.

“In Hong Kong, a tender offer can be either discretionary or mandatory. There were many reviews and negotiations between the seller (Times) and the purchaser (Lotte Shopping) as to which of the two types of tender offer they should proceed with.” says Beomsu Kim, Esq., who mentioned the difficult negotiation process by saying, “Times wanted to adopt a discretionary tender offer (in which Lotte Shopping, the subscriber, would make a tender offer in respect of 100% of the shares of Times), so that the minority shareholders could be given the same chance to sell their shares. On the other hand, Lotte Shopping argued for a mandatory tender offer (in which Lotte Shopping would enter into a share purchase agreement with the largest shareholder of Times and then would make a tender offer to the other shareholders of Times).”

Under the circumstances, the attorneys of Shin & Kim came up with an innovative compromise involving (i) entering into a share subscription agreement including the execution of a share purchase agreement with the largest shareholder of Times who held more than 70% equity interests in Times and (ii) agreeing to the proposal for a voluntary tender offer. Both Times and Lotte Shopping agreed to this compromise, bringing a dramatic solution to the acquisition of Times.

◇ The first ever M&A approval obtained by a Korean company from the Chinese government: an official approval of the above acquisition of Times was obtained from the Ministry of Commerce of the People’s Republic of China. The approval represents the first approval obtained by a Korean company with respect to its acquisition of a Chinese company under the business combination reporting system under the Anti-Monopoly Law of China, which has been enforced since August of 2008.

Since the effective date of the Anti-Monopoly Law of China, the Ministry of Commerce of China has strongly restricted foreign companies’ advance into the Chinese market by refusing to approve a business combination or approving a business combination with conditions attached. The Anti-Monopoly Law of China was the biggest issue in the global M&A market in 2009. In fact, in March of 2009, China’s Ministry of Commerce was under strong international criticism when it refused to approve a proposed acquisition by Coca Cola, a multination company, of a Chinese fruit juice and beverage company.

Most of the M&A deals that were subject to examination by the Ministry of Commerce of China were M&A cases between foreign companies, and there were very few cases involving the direct acquisition by a foreign company of a Chinese company for which a business combination report was filed with the Ministry of Commerce of China. The filing of a business combination report was made even more difficult by the fact that the acquiring party (Lotte Shopping) was the first Korean company to have ever filed a business combination report with China’s Ministry of Commerce for an M&A attempt by a foreign company of a Chinese company. Furthermore, the above deal represents the largest overseas M&A by a Korean distributor, and the largest ever M&A by a Korean company of a Chinese company, and amounts to up to KRW 800 billion if all of the shares in Times are acquired through the tender offer. The deal, in which a Chinese company ranked among the top 20 largest discount stores in China was acquired, also received a lot of attention in Korea.

By Reporter Sang-Won Yoon, news8@lawtimes.co.kr