Lotte Shopping wins Chinese retailer Times

South Korean department store chain Lotte Shopping has emerged the winner in an auction for Chinese retailer Times with a bid that implies a total equity value of HK$4.9 billion ($629 million).

Lotte has agreed to buy the 72.3% of Hong Kong-listed Times that is owned by its controlling shareholder, CS International, at a price of HK$5.575 per share in cash. Lotte will now make an offer to buy out the 27.7% held by minority shareholders at the same price. If it crosses the 90% threshold, Lotte intends to delist Times from the Hong Kong exchange where it has traded since 2007.

The deal is the largest acquisition by a Korean company in China and in Hong Kong. Lotte is advised by Nomura, while Times is advised by HSBC.

The price Lotte has offered represents a 25% premium to the price at which Times traded on Friday before it was suspended. It represents a 48% premium to the average closing price over the last 60 days before the suspension. Times reached a high of HK$4.55 on October 6, up from a low of HK$1.58 on April 28.

Lotte is paying 22 times earnings before tax for calendar 2008 and 19 times earnings before tax for the six-month period ending June 30 this year.

The announcement by Lotte yesterday marks the end of a keenly contested auction for Times. The process was highly competitive and Lotte did in fact not clear the first round of bidding because of concerns regarding whether the Korean firm would be able to close the deal. However, once those doubts were allayed, and with Lotte agreeing to attach few conditions to its bid, the firm became the strongest contender.

Lotte emerged the winner both because of aggressive pricing and because it made an all-cash offer, said a source close to the deal. Beijing-based retail store operator Wumart offered a combination of cash and stock, which did not provide as clean an exit for Times' owners, added the source. This is the second time Wumart has failed to acquire Times. In 2006, Wumart struck a deal with CS International to acquire a 50% stake in the Chinese retailer for HK$1.14 billion, payable half in cash, half in shares. However, Wumart was unable to proceed with the deal and Times raised the capital it needed through an IPO.