Participation by large retailers such as Lotte and Shinsegae Group has galvanized interest in the sale of eBay Korea, which seemed likely to be dominated by private equity (PE) firms.
The surprising development follows the U.S debut of Coupang, one of South Korea’s top distribution platforms, with a potential value of 60 trillion won ($53 billion). Retailers are worried that Coupang might raise trillions of won to strengthen its domestic market base.
The pending initial public listing (IPO) of Coupang in New York, expected to raise $3.6 billion for the e-commerce giant, also triggered moves in January to sell eBay Korea. The company’s U.S. headquarters is under pressure from activist fund Elliott to sell inefficient assets, and seems to have decided it cannot delay the disposal of its Korean business.
Goldman Sachs and Morgan Stanley were selected as financial advisors for the deal.
However, it has been difficult to find a buyer because deals of this size rarely happen in such a conservative distribution market. Large retailers were initially hesitate to participate because it was not thought to offer any synergies, and there was also skepticism over the structure and financial viability of South Korean e-commerce players.
Even industry leader Coupang continues to make large losses. It lacks an understanding of platform businesses and has limited value in its e-commerce and platform businesses.
These reservations had confined the contest for eBay Korea to PE firms and one or two small e-commerce operators. But that all changed when Coupang announced its IPO at the end of February, forcing a re-evaluation of the e-commerce business. Big distributors have now decided that a good e-commerce platform has considerable worth.
For retailers, it sent a message that other e-commerce operators could find it more difficult to survive if Coupang introduces at least 4 trillion won in IPO funds to aggressively expand its business. Buying eBay Korea, the No.1 open market operator in South Korea, has become an inducement for these companies to upscale their own businesses.
Lotte Group and Shinsegae Group have different situations, but both would be justified in expanding their e-commerce. They accept that it is no longer possible to have great economies of scale just from offline stores, and know they will need countermeasures as consumer trends continue to shift toward online platforms.
Coincidentally, both SSG.com (Shinsegae’s e-commerce platform) and Lotte On (Lotte’s e-commerce platform) are pushing for changed strategies with their new representatives. eBay Korea’s strength as a business operator – it has 20 trillion won in transaction costs, comparable to Coupang – is an attractive lure.
Some industry watchers believe the large distribution companies are only participating as pacemakers to increase the value of the eBay Korea sale. Lotte Group and Shinsegae Group acknowledge that they are screening the acquisition but do not aim to complete the race. It is a common strategy for merger and acquisition organizers to first put proposals to influential companies in a bid to push up the value.
“Coupang’s IPO news has led to a butterfly effect that increases the value of E-commerce operators as a whole,” said an official from the distribution industry.
“More and more operators are eyeing eBay Korea and it seems to be focusing on the acquisition as competitive sentiment increases.” (Reporting by Eunjin Choi)