South Korean retailer, E mart, is looking to purchase a 50% stake in Starbucks Korea which is held by the global coffee chain’s headquarters. The affiliate of Shinsegae Group, one of South Korea’s biggest retail franchises, currently holds the other 50% stake.
E mart is interested in raising its stake to 70%, with the remaining 30% stake to be bought by GIC, a Singaporean sovereign wealth fund. GIC is contemplating paying 800 billion Won, about USD $695m. for the 30% stake, adding a possible condition of the deal: for an initial public listing within four to five years.
Even though nothing is fixed yet, there has been speculation that the deal is expected to close quickly. While this deal, valuing Starbucks Korea at 2.7 trillion Won ($2.3bn), may boost E mart’s balance sheet, there’s a possibility that Starbucks headquarters might subsequently increase the royalties paid.
At the moment, the royalty fee adds up to 5% of Starbucks Korea’s annual sales. An analyst at Samsung Securities, Park Eun kyung, wrote in a report that the increase might be equal to the dividends Starbucks headquarters received in 2018. He stated:
If E mart acquires 100 per cent in Starbucks Korea, E Mart will see its operating profit grow by 70 per cent but Starbucks headquarters could ask higher royalties as part of the sales.
Shinsegae Group has been focusing their efforts on merger and acquisition this year, and so far, they have acquired an e-commerce platform, eBay Korea, fashion platform W Concept Korea, and a baseball team. If they manage to acquire the remaining stakes of Starbucks Korea, the company would have spent a total of 4.2 trillion won on M&A activity.