UPDATE 2-S.Korea's Lotte to pay $630 mln for Chinese retailer

* Price represents 20 pct management premium

* Deal “not cheap”, but better than feared - analysts

* Lotte to have firmer standing in Chinese retail market

* Lotte shares up 3.3 pct, Times at record high

By Jungyoun Park

SEOUL, Oct 20 (Reuters) - Lotte Shopping Co Ltd 023530.KS is to pay around $630 million for Chinese supermarket operator Times Ltd 1832.HK as South Korea's No.2 retailer looks to strengthen its foothold in a Chinese market whose fast growth is attracting global names.

The acquisition of Times, a leading Chinese hypermarket and supermarket operator with an established network in the country’s affluent and fast-growing eastern region, is expected to give Lotte access to a reputable brand.

Analysts said the pricing of the deal was not unreasonable, prompting a bounce back in Lotte’s share price after a drop on Monday when some details of the deal became known.

Lotte Shopping will make a general offer of HK$5.575 per Times share for a total of HK$4.87 billion ($628.4 million), according to a filing to the Korea Exchange and a joint statement with the Chinese firm.

It plans to buy 100 percent of Times, including 72.3 percent held by the Chinese firm’s majority shareholder CS International Investment Ltd.

Times operates about 53 hypermarkets and 12 supermarkets in China with a total gross floor area of approximately 892,628 square metres.

“On average, it costs about 10 billion won ($8.57 million) to set up a discount retail store in China,” said Chung Yon-woo, an analyst at Daishin Securities. “With Times, Lotte is taking over 65 ... and given that it will also be enjoying Times’ established brand, the deal’s pricing, while not cheap, seems reasonable.”

Chung added that the management premium Lotte was paying was lower than markets had feared, following the 200-300 percent premiums Lotte paid for Dutch wholesaler Makro’s China and Indonesia stores, now run by Lotte Mart, its retail outlet operator.

Lotte’s offer price for Times represents a premium of about 20 percent to Times’ last traded price of HK$4.64 on Oct. 12, prior to a trading suspension.

“There is general relief that the deal is finally out, and the pricing was not as bad as many had feared,” said Yoo Ju-yeon, an analyst at Meritz Securities.

Lotte shares were up 3.8 percent at 0330 GMT, outperforming a 0.4 percent gain on the broader market .KS11. In Hong Kong, Times shares opened up 17.7 percent at a record high.


Lotte, South Korea's biggest retailer after Shinsegae Co Ltd 004170.KS by market value, is the latest global retailer to accelerate its push into China. The deal with Times also highlights South Korean firms' ambitions to grow beyond their saturated home market.

Analysts said the deal was a vote of confidence in China’s consumer market, serving 1.3 billion customers, with the country on course to achieve its growth target.

“It signals that foreign firms are still keen to enter the China market and it makes a lot of sense for a firm such as Lotte to get a foothold by buying a local operator,” said Patrick Yiu, a director at CASH Asset Management.

Lotte was also buying Times’ local expertise.

“Lotte has made the right move in penetrating second- and third-tier Chinese cities instead of seeking a presence in top-tier cities where the market has been saturated and rents are also high,” said an analyst at a European bank who declined to be identified as he was not authorised to speak to the media.

Lotte Shopping beat off a reported $600 million bid for Times by Chinese retailer Wumart 8277.HK which, sources said last month, was in final talks with Times. Times had invited potential bidders as part of a strategic review. [ID:nHKG177129]

The pricing follows news late on Friday that Lotte Shopping would invest 733 billion won ($633 million) in its Hong Kong unit to help it expand in China and Hong Kong. [ID:nSEL002696] (Additional reporting by Donny Kwok and Alison Leung in HONG KONG; Editing by Jonathan Hopfner and Dhara Ranasinghe)