Naver, E-Mart in share swap talks ahead of Coupang's US IPO

South Korea’s largest online platform Naver Corp. has tentatively agreed to swap its shares with E-Mart Inc., Shinsegae's supermarket chain, according to investment banking sources on Mar. 9, in the face of competition from Coupang Corp. armed with up to $3.6 billion in proceeds from its New York Stock Exchange listing Thursday.

Naver and E-Mart are now fine-tuning details of their cross-ownership, involving some of the treasury shares owned by Naver. The value of their share deal would be between 250 billion and 300 billion won ($220 million-$260 million), similar to that of Naver’s share swap with another Korean retailer CJ Group signed last year.

Talks between the two companies about business cooperation and share swap made progress after Shinsegae Group Vice Chairman and de-facto leader Chung Yong-jin met with Naver’s co-founder and Global Investment Officer Lee Hae-jin in January of this year. E-Mart Chief Executive Kang Heui-seok and Naver CEO Han Seong-sook accompanied them to the meeting.

When asked about their possible deal by the Korea Exchange, both companies said in separate filings that they are considering various strategic options for business growth, but nothing has been decided.

Naver closed up 3% at 372,000 won on Wednesday, with E-Mart flat at 177,000 won.

DIVERSE PRODUCTS, INTERNET PAYMENT

Under a business partnership, E-Mart would list its fresh groceries and other products on Naver’s online platform, which rose to the top spot in the country's e-commerce market last year. That may lead Naver users to visit E-Mart’s own online platform SSG.COM with a 2.5% market share. That compares with Naver's 16.6% and Coupang's 13%. Third-ranked eBay Korea, currently up for sale, holds a 12% share.

For Naver, E-Mart's products will broaden its grocery lineup and expand its mobile payment services, Naver Pay, into E-Mart's offline stores, as well as the Naver Plus Membership. The subscription-based membership offers a discount on transactions made via Naver Pay.

A business tie-up with E-Mart would underline Naver's strategy to boost its logistics and product lineup through share swap deals, in contrast to Coupang's heavy spending on its logistics network to expand its same-day, or rocket delivery service to a broader range of products and across the country. With the IPO proceeds, Coupang is expected to invest aggressively to widen its gap with domestic rivals.

The prospective sale of eBay Korea is also likely to change the landscape of the country's e-commerce market. Shinsegae is touted as one of a few serious bidders for eBay Korea, at which the mobile platform behemoth Kakao Corp. has been taking a close look since last year.

Last October, Naver signed a 600 billion won deal with CJ Group, including a 300 billion won share swap, to beef up delivery services by using CJ's logistics network as well as boosting its entertainment business. 

“By forming business partnerships with CJ and E-Mart, Naver will be able to bolster its logistics network and secure killer content. Then it may look to gradually increase fees and maximize profit,” said an internet technology industry source.

Currently, Naver charges a vendor 2% of a transaction amount as a fee, compared to Coupang's 10%.  

Write to Jun-ho Cha and Min-ki Koo at chacha@hankyung.com
Yeonhee Kim edited this article.