Lotte Chemical raises stake in Fine Chemical amid merger talk

South Korea’s Lotte Chemical Corp. has raised its stake in affiliate Lotte Fine Chemical Co. amid speculation that the two companies may merge to compete with bigger rival LG Chem Ltd.

According to the Financial Supervisory Service on Sunday, Lotte Chemical, the petrochemical unit of Lotte Group, Korea’s fifth-largest conglomerate, has bought 1.31 million shares in Lotte Fine Chemical worth 102.3 billion won ($80 million) over the past six months.

As a result, its stake in Lotte Fine Chemical, Korea’s largest ammonia producer, has risen to 36.21% from 31.13% previously.

Lotte Chemical said the stake purchase is aimed at strengthening control over its affiliate “in a responsible manner,” but industry watchers said it may be paving the way for an eventual merger through absorption.

In 2009, the company tried in vain to absorb another Lotte Group subsidiary KP Chemical Corp. in the face of objections from KP Chemical shareholders, who asked Lotte Chemical to buy their shares at high prices.

A higher stake in Lotte Fine Chemical would help Lotte Chemical spend less if it faces similar requests from Lotte Fine Chemical shareholders in the merger and absorption process, industry watchers said.

ECONOMIES OF SCALE

If the two chemical-related Lotte Group affiliates are combined, the new entity will achieve economies of scale and better compete against domestic industry leader LG Chem, they said.

Asked about the possibility of a merger of the two companies during an investor relations session with analysts last week, Kim Yeon-sup, Lotte Chemical’s chief strategy officer, said: “We are open to such a possibility.”

Lotte Chemical has been diversifying its business portfolio from petrochemicals into other areas, including eco-friendly projects and high-performance solid-state batteries.

Last month, the company said it is launching a $200 million joint venture with US battery startup Soelect Inc. to advance into the electric vehicle battery market.

In February 2016, Lotte Chemical acquired a controlling 31.13% stake in Samsung Fine Chemicals Co., which was later renamed Lotte Fine Chemical, from Samsung Group.

Write to Ik-Hwan Kim at lovepen@hankyung.com
In-Soo Nam edited this article.