Lotte Group’s confectionery and food shares jump 5% on merger news

Shares of both Lotte Confectionery and Lotte Food rose more than 5% Thursday on expectations of synergy effects from their upcoming merger. 

A day prior, South Korea's fourth-largest conglomerate Lotte Group announced it will merge its confectionery and foodstuffs businesses.

Lotte Confectionery closed Thursday’s trade 5.12% higher than the before at 122,000 won per share. Lotte Food shares jumped 5.81% to finish the day’s trade at 346,000 won per share. 

The merger will place the confectionery juggernaut as the No. 1 producer of packaged snacks and frozen desserts in South Korea. In the overall food sector, it will be the second-largest player after CJ CheilJedang Corp. with combined revenue of 3.7 trillion won ($3 billion).

The confectionery arm’s planned takeover of the smaller subsidiary will go through an approval process at the general shareholders’ meeting slated for May 27. The target completion date is July 1. 

Investors are bullish that the merger will lead to tangible results – especially when it comes to cost reduction.

Shim Eun-ju, an analyst at Hana Financial Investment Co. said, “Because the two companies use similar ingredients, such as dairy products, being able to purchase them in a more effective manner alone could cut costs in a meaningful way.” 

Lotte Food, which has a minimal presence abroad, is expected to utilize the global sales network of Lotte Confectionery.

The merger will also bolster the frozen dessert businesses.

At present, Binggrae is the top player in the country’s ice cream and related products industry with a 41% market share. Lotte Confectionery and Lotte Food follow closely behind with 30% and a 16% market share, respectively. 

After the merger, Lotte will surpass Binggrae to become Korea's largest producer of frozen desserts.

Experts say the improved operating profit from combining manufacturing plants and streamlining the resources will also help increase Lotte's market share.

Both the confectionery and food arms of Lotte had named similar businesses as their long-term growth engines.

“Lotte Confectionery will reinforce its brand power by building a portfolio that encompasses products that cater to a wider demographic such as baby formula and food specialized for the elderly,” Hana Financial's Shim explained. 

The confectionery arm is widely considered as the root of the Lotte Group.

Its founder Shin Kyuk-ho returned to South Korea from Japan in 1967 and began his business on the peninsula by selling chewing gum.

All eyes are on whether Lotte Confectionery will reclaim the throne as Korea's top producer of candies and frozen desserts, which it lost to Orion in 2020.  

Write to Sung-Mi Shim at smshim@hankyung.com
Jee Abbey Lee edited this article.