Naver, Shinsegae in talks to team up for eBay Korea

Naver Corp., South Korea's top online portal, is in talks with the country's retail giant Shinsegae Group about a joint bid for eBay Korea -- a deal that would accelerate a shake-up in the domestic retail landscape. 

The two companies are discussing forming a consortium to buy eBay Korea, the country's No. 3 e-comemerce platform estimated at 5 trillion won ($4.4 billion), according to investment banking sources on May 19. Shinsegae may seek a majority stake in eBay Korea and Naver another 20%, while co-managing the online retailer.

US e-commerce giant eBay Inc. has offered to sell 100% of its South Korean operations and Shinsegae is one of the four shortlisted candidates, alongside fellow leading retail group Lotte, as well as SK Telecom Co. and MBK Partners. SK Telecom and MBK are also considering partnering up for the deal, according to other banking sources.

The discussion for a joint bid between Shinsegae and Naver follows their 250 billion won ($221 million) deal signed in March to cross-own shares to strengthen cooperation in the increasingly competitive e-commerce market.

Their share swap agreement comes 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 to discuss business cooperation.

Both Shinsegae and Naver are vying for the upper hand against rising e-commerce players such as Coupang Corp., which made a spectacular debut on the New York Stock Exchange in March to raise $4.6 billion. The deep-pocketed e-commerce rival is gearing up for aggressive expansion.

Naver commands 18.6% of the domestic e-commerce market, followed by Coupang's 13.7% and eBay Korea's 12%. eBay Korea runs the country's two popular shopping platforms -- Gmarket and Auction -- as well as a curated shopping platform, G9. 

If the proposed Naver-Shinsegae consortium wins the competition for eBay Korea, they will emerge as the dominant player in the country's online retail market worth 47 trillion won in annual transaction value.

A combination of Naver's e-commerce business worth 29 trillion won with eBay Korea's 17 trillion won and Shinsgae's 1.4 trillion won via its e-commerce spin-off SSG.COM will far outweigh Coupang Corp's 24 trillion won.

As well as sharing the acquisition costs for eBay Korea, teaming up with Naver will allow Shinsegae to put more resources into its logistic infrastructure, while taking full advantage of Naver's broad portal customer base.

Further, in order to secure a customer database on last-mile delivery services, Shinsegae has entered the race for the country's second-largest food delivery platform Yogiyo. It is the only strategic bidder for Yogiyo, up for sale by Germany's Delivery Hero.

For Naver, it will be able to enhance its product lineup by using Shinsegae's retail brands -- Shinsegae Department Store, E-Mart, SSG.COM and No Brand -- while making up for its weakness in logistics facilities. The online giant may use Shinsegae's offline stores nationwide as logistics centers.

To strengthen its logistic infrastructure, Naver had inked a 600 billion won ($531 million) share-swap deal with the logistics giant CJ Group last year.  

Additionally, Naver may expand the user base of its mobile payment service, Naver Pay, into Shinsegae's offline stores.

Shinsegae's recent e-commerce acquisition targets

Naver's efforts to bolster its logistics infrastructure

ANTITRUST ISSUES

The biggest stumbling block to a possible joint bid for eBay Korea would be monopoly concerns, given Naver's leading position in the e-commerce sector.

Naver could face tight scrutiny from antitrust regulators as a candidate, delaying the deal's closing. In that respect, the antitrust issue may give its rival bidders the upper hand in negotiations.

"A recent ruling by the Korea Fair Trade Commission concluded that Naver and open market platforms are not in equal relationships but in vertical relationships. That could become a challenge to a possible deal," said an antitrust lawyer at a law firm.

In the worst-case scenario, the antitrust regulator could order Naver to give up price-comparison services, or not allow eBay Korea's outlets -- Gmarket, Auction and G9 -- to sell products on the Naver website, he added. 

An open market platform such as Gmarket is a marketplace that connects a wide range of sellers with consumers.

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