Lotte chairman cements grip after lengthy succession feud

Published : Mar 8, 2016 - 13:37 Updated : Mar 8, 2016 - 13:37

The prolonged family feud at Korean retail giant Lotte Group has virtually come to an end as the founder's second son and incumbent chief won shareholder support to tighten his grip on the sprawling business empire, according to company officials and observers Tuesday.

Lotte chairman Shin Dong-bin has been mired in a succession battle with his elder brother, Dong-joo, who has waged a series of legal battles and negative media campaigns after being stripped of his senior posts at Tokyo-based Lotte Holdings in early 2015.

Shing Dong-joo (left), Shin Dong-bin (Yonhap)

Although Dong-bin won backing from shareholders of Lotte Holdings, the de-facto holding firm of Lotte Group, in August, Dong-joo continued his uphill battle against his younger brother to reinstate his post.

The elder son of the Lotte founder has claimed he is his father's hand-picked successor, but Dong-bin argued that his father is unable to make reasonable judgments due to mental health problems.

The opponent's attempt, however, fizzled out as Japanese shareholders once again threw support behind the incumbent head during Sunday's vote to bolster his foothold in Korea's fifth-largest conglomerate.

The eldest son vowed to bring the matter to the next shareholders' gathering in June, but Lotte Group said there's nothing more left to the issue.

"We urge Shin Dong-joo to accept the result and stop activities that harm Lotte's corporate value and business order," Lotte said in a statement on Sunday.

The bitter personal attacks between the two brothers have not only hurt the retail giant's friendly image but also revealed its murky governance based on a cobweb of cross-shareholdings.

The tycoon started a small confectionery business in postwar Japan in 1948 and later developed that business in Korea, making it into a sprawling business empire that owns 74 affiliates in 20 countries with an annual revenue reaching more than 80 trillion won ($66.3 billion) as of 2014.

Now that Dong-joo's attempt to get his job back ended in vain, Lotte has geared up procedures to weaken the aged founder's remaining power in the business group.

One day after the vote, Lotte Confectionery, a Seoul-based food unit, said it will not reappoint Shin Kyuk-ho to its board of directors when his term expires later this month.

The business mogul appointed his second son as the chief of Lotte Group in 2011, but has served on the board of directors at several affiliates, including Lotte Confectionery, Hotel Lotte and Lotte Shopping.

With a legal suit related to the tycoon's legal guardian currently pending in court, company officials expected Shin will not be able to keep his board seats when his current terms expire one after another through next year.

The founder's younger sister in December requested a Seoul court to pick her as his legal guardian, claiming her aging brother is no longer capable of making consistent decisions.

"The company made the decision as Shin is too old and deemed not fit for everyday management activities as part of the board of directors as (his younger sister) requested the a right to become his legal guardian," a senior Lotte Confectionery official said.

Hwang Kak-kyu, Lotte chairman Shin Dong-bin's right-hand man, will take up his post, the company said.

With the end of the lengthy succession feud in sight, shares of Lotte affiliates were again in the limelight on the local bourse on rising hopes for shareholder-friendly policies to restore the tarnished corporate image.

Lotte Shopping, a key retail unit whose largest shareholder is the Lotte chairman, jumped 6.61 percent in the KOSPI market on Monday as investors positively evaluated reduced uncertainties related to the leadership.

The recent development also bode well for the ongoing process to list Hotel Lotte on the Seoul bourse and other subsidiaries considered undervalued due to management-related risks.

The initial public offering (IPO) of Hotel Lotte is one of the reform pledges the chairman has made to assuage public disgust after the bitter family feud shed light on its complicated shareholding structure.

"Hotel Lotte's IPO would provide an opportunity to improve the corporate governance problems, which stemmed from the succession wrangling," Park Jong-ryeol, an analyst at HMC Investment & Securities, said.

Lotte Confectionery, a food unit that stands at a critical position in the cross-shareholding structure, also plans to conduct a 10-for-1 stock split to boost trading among retail investors.

The board of directors decided to cut the face value of its common stock from 5,000 won to 500 won, which would increase its number by tenfold to 14.21 million upon its re-listing on May 17.

Shares of Lotte Confectionery closed at 2.4 million won on the Seoul bourse on Monday, up 1.93 percent from the previous session, marking the nation's most expensive price per share. (Yonhap)