CJ Foodville Co Ltd is seeking a buyer for its bakery chain division, Tous Les Jours, amid ongoing restructuring efforts by  holding company CJ Corp, but industry watchers warned it may face an uphill battle due to a valuation gap.   

Deloitte Anjin was recently hired to arrange the sale, sources said on Monday (August 24), confirming rumors that have been circulating for more than a year. CJ Foodville plans to spin the division off as a separate entity before disposing of its entire stake, and has started marketing the sale to local and foreign private equity (PE) firms.

Several PE firms have been approached about a private purchase since early last year, although CJ Foodville publicly denied it was seeking a buyer. Some of these companies are said to have made offers, but none led to a deal.

“We briefly conducted a review of businesses of CJ Foodville last year after being approached by the company,” said an official at one private equity firm. “I heard CJ Foodville also tapped several other private equity firms.”

Tous Les Jours is the second-largest player in the South Korean bakery chain market with a share of 25% and 1300 stores.  Paris Baguette, operated by SPC Group, has a dominant share of more than 70%, with over 3400 stores nationwide.

With the domestic market almost saturated, Tous Les Jours’ growth potential appears limited. Another hurdle is that large bakery chain operators are prevented from opening new stores near their existing outlets to protect small business owners.

“The regulatory environment is not favorable to Tous Les Jours, which needs to expand its market share,” an analyst said. “I’m rather skeptical about its growth potential, even if it managed to find a private equity buyer.”

The chain has also struggled in overseas markets. Its stores in China, Vietnam, Indonesia, the Philippines, Cambodia and Mongolia are all making losses, with only the U.S. operations doing well.

Last year CJ Foodville separately sold Tous Les Jours stores in two key Chinese cities – Beijing and Shanghai – and the eastern province of Zhejiang to Chinese private equity firm Hosen Capital, which could make the firm less attractive to investors.

However, industry watchers said the biggest obstacle appears to be a valuation gap between the seller and potential buyers. CJ Foodville reportedly wants more than 300 billion won ($252 million) for the division, while the offers previously made by some PE firms are said to have been around 200 billion won.

“CJ Foodville would need to sweeten the terms of sale to make potential buyers revisit their offer prices,” said an official at another private equity firm. (Reporting by Ik-hwan Choi)