Shinsegae faces off with Affinity, BRV over SSG.COM

Shinsegae Group could face a legal battle against two private equity firms that are demanding it buy back their combined 1 trillion won ($727 million) worth of stakes in the South Korean retail giant’s e-commerce brand SSG.COM, adding to the woes of its cash-strapped parent.

According to sources in the investment banking industry on Sunday, E-Mart Inc. and Shinsegae Inc. are in negotiations with Affinity Equity Partners and US-based BlueRun Ventures (BRV) over the private equity firms’ options to sell their stakes in SSG.COM.

Affinity Equity and BRV are financial investors in SSG.COM, each with a 15% stake, after together injecting 700 billion won in 2019 and an additional 300 billion won in 2022 in the online retailer under put option contracts.

They agreed to invest in SSG.COM on the condition that the e-commerce platform’s gross merchandise value (GMV) surpass 5.16 trillion won by 2023 or be eligible for an initial public offering before their put option contracts expire on May 1, 2024.

Under the agreement, if SSG.COM fails to meet the conditions, Affinity Equity and BRV can exercise their rights to request the e-commerce operator’s major stakeholders buy back their stakes at a premium.

E-Mart and Shinsegae are SSG.COM’s No. 1 and 2 stakeholders, owning 45.6% and 24.4%, respectively.

The financial investors argue that SSG.COM has failed to meet the conditions of their investment agreement, whereas Shinsegae Group refuted the argument.

If their talks collapse, they may continue their fight in court, dealing a blow to the already struggling E-Mart and Shinsegae, as well as the financial investors.

SSG.COM BOWS OUT AMID FIERCE COMPETITION  

Shinsegae Group said SSG.COM has met both conditions for the financial investment as the online retailer’s GMV reached 5.7 trillion won in 2023.  

However, Affinity Equity and BRV said that SSG.COM’s GMV doesn't reach the agreed level if it excludes gift certificate purchases. They argue such certificate sales should not be included in the GMV calculation.

The two also stand on opposite ends regarding SSG.COM’s IPO plan.

According to their investment agreement, SSG.COM should have gone public or received recommendations for its IPO potential from multiple securities firms before the expiry date of their put option contracts.

Shinsegae Group initially planned to list SSG.COM in 2022 and received multiple underwriting proposals from investment banks and securities firms in 2021. But it has put off the IPO plan due to unfavorable IPO market conditions.

Shinsegae, however, argues because it already received multiple underwriting proposals, it has met the IPO conditions.

But Affinity Equity and BRV are said to have rebuffed that, saying that underwriting proposals are not official recommendations. 

HERALDING RESTRUCTURING

Parallel to the dispute with the investors, Shinsegae is said to be seeking to reform SSG.COM's business, according to sources.

SSG.COM has been grappling with losses without any sign of imminent recovery amid intensifying competition from rivals at home and abroad, including China’s AliExpress and Temu.

It has not yet created synergy with the retail giant’s other e-commerce marketplaces such as Gmarket, a major e-commerce marketplace based in Korea, and Auction, which Shinsegae acquired for 3.44 trillion won in June 2021.

The retail giant has attempted to merge SSG.COM with Gmarket, but the online shopping mall’s financial investors reportedly opposed the idea.

Sources from Shinsegae hinted that the group is reviewing an option to reorganize its e-commerce business around SSG.COM after letting its financial investors go.

Depending on the result of the talks with the financial investors, Shinsegae may have to sell stakes in other affiliates. Possible assets that could be up for grabs include Shinsegae’s minor stakes in Starbucks Korea, Shinsegae Food Inc. and E-Mart24 Inc.

E-Mart and Shinsegae are not in a position to spend about 1 trillion won to buy back Affinity Equity's and BRV’s stakes.

Especially, the largest stakeholder E-Mart posted its first annual loss in 2023 and last month announced an early retirement program for its employees for the first time since its inception 31 years ago.

This means SSG.COM’s financial investors would not be able to cash out of their investment in the online retailer as its parent group is short of cash to buy back their stakes.

SSG.COM was split off from E-Mart and has absorbed Shinsegae Department Store's e-commerce business to become the group-wide online platform.

Write to Jong-Kwan Park and Jun-Ho Cha at pjk@hankyung.com

Sookyung Seo edited this article.