Did Lotte Wellfood Sell Off Its Headquarters Building to Stockpile Ammunition?

Owner of Yangpyeong-dong Building Lotte Wellfood → Lotte Homeshopping
Wellfood Increases Investment Scale After Merger of Confectionery and Food Divisions

Lotte Wellfood (formerly Lotte Confectionery) has decided to sell its office building to Lotte Homeshopping (corporate name Woori Homeshopping), drawing attention to the background behind this decision. Although the apparent reason is that Lotte Homeshopping mostly uses the building, it is analyzed that the need to secure cash coincides with Lotte Wellfood increasing facility investments for overseas expansion and other purposes.

Lotte Wellfood headquarters building. [Photo by Lotte Wellfood]

According to the distribution industry on the 2nd, Lotte Wellfood and Lotte Holdings recently announced that they will sell the land and building of the Yangpyeong office located in Yangpyeong-dong 5-ga, Yeongdeungpo-gu, Seoul, to Lotte Homeshopping. Lotte Wellfood and Lotte Holdings hold 35.4% and 64.6% stakes in the building, respectively. During the establishment of Lotte Holdings in 2017, a spin-off took place, resulting in the division of shares between Lotte Holdings and Lotte Wellfood, but in reality, Lotte Wellfood is the owner. Lotte Wellfood uses floors 13 to 19 of the 1 to 19-story building. The remaining floors are used by Lotte Homeshopping. The total amount involved in this contract is 203.9 billion KRW, with Lotte Holdings receiving 131.7 billion KRW and Lotte Confectionery receiving 72.2 billion KRW.

Although the Yangpyeong-dong office recently showed a strong Lotte Homeshopping presence, with Shin Yu-yeol, a third-generation member of the Lotte family and executive director of Lotte Chemical, visiting Lotte Homeshopping, it originally holds symbolic value as the headquarters of Lotte Confectionery. Lotte Wellfood built the office on the site of the Yeongdeungpo logistics center during the Lotte Confectionery era and took its first step in Yangpyeong-dong in 2010. This office is significant as the headquarters of Lotte Confectionery, the group's origin, where Chairman Shin Dong-bin has presided over several executive meetings in the past.

Regarding this sale, a Lotte Wellfood official said, "Since the number of Homeshopping employees in the building is twice that of Wellfood, it seemed appropriate for them to manage it," adding, "Even after the sale, we plan to use the building as our headquarters in a lease format." A Lotte Holdings official stated, "Currently, Lotte Holdings only holds shares and does not strategically use the building," and "It was deemed reasonable to sell it to Homeshopping, which has a higher usage ratio."

In conclusion, the aim is to improve asset efficiency, and the background for Lotte Wellfood and the holding company to proceed with the share sale likely involved the need to secure cash. Since last year, Lotte Wellfood has been pushing a large-scale facility investment plan following the merger of Lotte Confectionery and Lotte Food. Although this year’s unfavorable business environment is expected to prevent achieving the planned capital expenditure (CAPEX) of 240 billion to 290 billion KRW, it is anticipated that investments will be made at a level higher than last year’s 121.4 billion KRW, considering market conditions. The company is also actively expanding its business overseas. Although the scale of investment is expected to shrink this year, last year it invested 79.2 billion KRW for the Russian subsidiary (12 billion KRW) and the Indian Choco Pie production line (30 billion KRW). Through mergers and acquisitions (M&A), it aims to expand its business scope from emerging countries to advanced countries such as the United States.

As the company is eager to invest, borrowed funds have also increased significantly. Borrowings, which were 1.2864 trillion KRW at the end of last year, expanded to 1.4806 trillion KRW as of the end of the first quarter this year. Net borrowings excluding cash equivalents reached 930 billion KRW, an increase of 400 billion KRW compared to two years ago (520 billion KRW). Earlier this year, to repay debt and secure operating funds, the company issued 300 billion KRW worth of public corporate bonds for the first time in about a year. Considering commercial papers (CP) issued in the private market, the scale of debt securities is on the rise. Free cash flow (FCF), which can be used for debt repayment and share buybacks, continued a negative trend from 57 billion KRW in the third quarter of last year to -52.1 billion KRW in the fourth quarter and -9.7 billion KRW in the first quarter of this year.

Although the financial burden is not yet significant, managing the financial structure is essential as debt increases. Gu Jeong-won, an analyst at Korea Ratings, said, "Due to increased borrowing burdens from merger costs, share buybacks, overseas business expansion, and equity investments related to new businesses, and with plans for overseas facility expansion, merger-related production efficiency, and integrated system construction, capital expenditures will increase further," adding, "While the current situation is stable, if borrowings increase further due to slowing growth in the confectionery market and investment burdens, it could negatively impact the company."

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