[Click eStock] Synergies of Lotte Confectionery-Lotte Food Merger... Cost Reduction and Business Enhancement

[Asia Economy Reporter Lee Seon-ae] Hana Financial Investment cited cost reduction as the greatest synergy expected from the merger of Lotte Confectionery and Lotte Foods on the 24th, recommending an overweight investment stance.

On the previous day, Lotte Confectionery announced the absorption merger of Lotte Foods. The surviving company is Lotte Confectionery, and Lotte Foods will be merged. The merger date is July 1, 2022, and the new shares will be listed on July 20, 2022. The merger ratio is Lotte Confectionery:Lotte Foods = 1:2.8051744.

The combined simple sales of the two companies approach 4 trillion KRW. As a comprehensive food company is born, Hana Financial Investment's analysis expects significant synergy effects in cost reduction. After the merger, it is anticipated that efficiency will be maximized through the priority integration of the ice cream, e-commerce, and global sectors. Since both companies have many overlapping raw materials such as dairy products, even visible purchasing efficiency alone is expected to enable substantial cost savings.

Strengthening competitiveness in the ice cream business is also expected. The domestic ice cream market size is about 1.4 trillion KRW and continues to decline. The market share of ice cream (4 companies + imports) is estimated as Binggrae 41% (Binggrae 27% + Haitai 14%), Lotte Confectionery 30%, Lotte Foods 16%, and others (H?agen-Dazs, etc.) 12%. Upon the merger of the two Lotte companies, the market share will be around 50%, making them the number one market leader. Discontinuing less competitive products to respond to competitors is expected to enable brand and SKU efficiency. Gradually, meaningful operating margin improvements through factory integration and workforce efficiency are also anticipated.

New businesses for mid- to long-term growth are also expected to be strengthened. Besides ice cream, both companies have been engaged in and reviewing similar new businesses such as senior food and health food, which has made aggressive business expansion difficult. Eunju Shim, a researcher at Hana Financial Investment, stated, "Through the merger, by building a food portfolio covering the life cycle from infant formula to silver food, brand competitiveness is expected to be strengthened," adding, "Moreover, Lotte Foods, which has a negligible overseas presence, is expected to expand its scope in the future, such as increasing infant formula exports, by utilizing Lotte Confectionery's global network."

This content was produced with the assistance of AI translation services.