According to bankers close to the deal, Eugene beat off more than 10 competing bidders for the stake held by Affinity Equity Partners by offering the Hong Kong-based private equity firm a ôclean exitö rather than the highest price.
In an environment hostile to private equity activities that is still darkened by Lone StarÆs purchase of Korea Exchange Bank in 2003, public opinion can quickly turn against firms making what it perceives as excessive profits. By taking a lower bid, Affinity hoped to avert potential criticism, keep a low profile and avoid political sanction. And by guaranteeing the jobs of HimartÆs employees, Eugene aimed to avoid antagonising the labour unions.
Nevertheless, Affinity and related parties are believed to have more than doubled their investment in two-and-a-half years. Affinity led a consortium that included Temasek Holdings and the Government of Singapore Investment Corporation to buy 80% of Himart for W788 billion in April 2005.
Other private equity firms, including CCMP Capital Asia, TPG and Korea's MBK Partners were understood to have bid for Himart, while Blackstone and Carlyle also looked at the target at an early stage. Local retail groups Lotte, Shinsegae and Prime, which operates rival electronics outlet Techno-Mart, were also reportedly interested, while GS Corp was believed to have bid W2 trillion. Goldman Sachs handled the sale and Citi acted as Eugene's advisor.
The multi-tranche W1.35 trillion leveraged facility financing for the purchase was launched into syndication in mid-January and closed at the end of the month. It marked KoreaÆs first significant leveraged loan of the year and could turn out to be a barometer of lenders' appetite for leveraged assets during a time of high risk aversion, as liquidity remains tight in credit markets.
The facility was made up of three five-year tranches: a W1.1 trillion term loan A using a special purpose vehicle; a W50 billion tranche B revolver; and a W200 billion tranche C term loan to refinance debt.
The loan pays 250bp over the three-month certificate of deposit (CD) rate on tranches A and B, and 200bp over the CD rate for tranche C. Eugene also supplied about W510 billion in cash to supplement the debt package and a further W390 billion was provided by an unidentified financial investor.
Sole lead arranger National Agricultural Co-operative Federation (NACF) secured commitments from major domestic banks, suggesting that liquidity in the domestic market remains healthy.
Eugene Group is a conglomerate (chaebol) involved in financial, construction and confectionary operations, while its flagship Eugene Corp is a builder and maker of construction materials. Eugene Group reported an operating profit of W4 billion on sales of W800 billion in 2006 and the group estimates its sales for 2007 at W1.02 trillion.
Eugene Group made a foray into the financial industry by taking a controlling stake in Seoul Securities in late 2006. The group also expanded into the logistics industry by buying local parcel delivery service firm Logen Corporation as well as two other logistics firms in 2007.
The group said it planned to create synergies between those logistics units and Himart, which has more than 250 outlets and controls more than 17% of the domestic market. Last year the retailer reported net profit of W87 billion on revenues of W2.16 trillion.
Sources familiar with the Himart deal said Eugene has no immediate plans for further acquisitions and instead will focus on ôpost-merger integrationö. However, Kim Jae-sik, vice chairman of the group, told reporters in December that the company would ôcontinue to look into other acquisition opportunitiesö.
EugeneÆs share price surged by the daily allowed limit of 14.9% to W13,100 on December 10 after the Himart acquisition was first announced, then rose to over W14,000 at the start of the year before falling more than 25% by the beginning of February against a background of collapsing Asian stockmarkets.
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