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Chaebol group desperate to raise H&B store chain's valuation
By Park Jae-hyuk
CJ Group's intentions have come in to question over its ongoing attempt to list CJ Olive Young on the local bourse later this year, according to capital market experts Wednesday.
They went on to say that CJ will face a setback in increasing the valuation of Olive Young until it goes public, as its initial public offering (IPO) is widely seen as part of the chaebol group's efforts to hand over control of the conglomerate to Chairman Lee Jay-hyun's two children.
Last November, the health & beauty (H&B) store chain hired Mirae Asset Securities and Morgan Stanley as the lead underwriters, and KB Securities and Credit Suisse as co-underwriters for its debut on the Seoul bourse.
The underwriters are said to have estimated Olive Young's valuation at up to 4 trillion won ($3.3 billion), in contrast to Glenwood Private Equity that evaluated the retailer's worth at 1.8 trillion won last March, when making a 400 billion won investment.
Securities analysts have raised questions about the estimated 4 trillion won valuation, bwhich exceeds market caps of Korea's major retail giants, such as E-mart, Shinsegae, Lotte Shopping and Hyundai Department Store, all of which operate outlets nationwide as well as e-commerce platforms.
"Olive Young can hardly be free from widespread speculation that its IPO is intended for the CJ owner family's managerial succession," an analyst from a local securities firm said on condition of anonymity. "The Korea Exchange has prevented companies from going public, if their valuations are excessively higher than their peers. It will therefore be difficult for Olive Young to exaggerate its valuation."
According to analysts, Olive Young's enterprise value must increase as much as possible, in order for the chairman's children to maximize their grip on the group's holding company, CJ Corp.
The chairman's son, Lee Sun-ho, who is an executive of CJ CheilJedang, only owns a 2.87 percent stake in CJ Corp. as of Feb. 4, while having an 11.09 percent stake in Olive Young.
His older sister, Lee Kyung-hoo, who has served as a CJ ENM executive vice president, holds just a 1.27 percent in the holding firm, while owning a 4.26 percent stake in Olive Young.
Once Olive Young goes public, the heirs are expected to sell their stakes in the company to pay taxes on CJ Corp. shares that they inherited from their father as wel as to buy additional holding company shares, most of which belong to the chairman.
Olive Young unattractive to investors
Korea University Business School professor Kim Woo-chan warned that Olive Young will become less attractive to stock investors, if its IPO is considered preparatory to the owner family's managerial succession.
"It is unreasonable for a company to pursue an unnecessary IPO for its owner's son to secure cash," said the professor, who has also led the Economic Reform Research Institute. "The hidden intention behind Olive Young's IPO is quite obvious."
CJ has officially denied speculation that Olive Young's IPO is aimed at managerial succession.
"It is too early to talk about succession plans," a CJ Corp. spokesman said. "Olive Young's IPO is intended to raise money for investments."
There is also speculation that Olive Young will delay or retract its IPO, if it fails to attract investors, as Hyundai Engineering did last month.
When Hyundai Engineering canceled its plan amid the worsening investor sentiment about the nation's construction industry, the possibility of Hyundai Motor Group Chairman Chung Euisun using the IPO for his managerial succession was mentioned as one of the reasons for skepticism among investors, who were concerned about a potential fall in the construction firm's stock price immediately after going public.
