Homeplus Sale Could be Largest Private Equity Deal Ever in Korea

Seoul-based private equity firm MBK Partners has been named the preferred bidder to buy Tesco’s Homeplus South Korean unit —its largest outside the U.K.—in a deal that could reach as much $7 billion.

If the deal goes through as expected it would be among the largest transactions in Asia this year and possibly double the largest private-equity deal ever in South Korea –far exceeding Hahn & Co.’s $3.6 billion purchase of Halla Visteon Climate Control Corp. from U.S. auto-parts supplier Visteon Corp in December of last year.

One source told Reuters that the MBK bid was around 7.8 trillion won ($6.61 billion) and another source, while unwilling to confirm exact numbers, said MBK’s bid was “higher than expected” as bidding continued.

 
 

Homeplus consists of two divisions in South Korea – Homeplus and Homever. Homeplus operates 117 stores and Homever runs 33 supermarkets. It is the second-largest grocery-retailer store chain in Korea after E-Mart, which is owned by Shinsegae.

Korea needs a win

Private-equity firms have been drawn to South Korea for sizable deals. A traditional problem however, is the difficulty in dealing with strong unions and government hostility towards foreign investors. When investors are ready to cash out of successful investments they have in the past faced obstruction by highly nationalist rhetoric.

Lonestar is the prime example –a case which continues to drag on while global firms watch and wait to see in which direction Korea’s openness to foreign investment will go.

 
 

“It is very unfortunate if the Lone Star case left a negative impression on other foreign investors looking into opportunities in Korea,” Financial Services Commission Chairman Kim Seok-dong said in a February 2012 interview.

“We will treat local and foreign investors equally, abiding by laws and principles,” he added.

That remains to be seen, but the Tesco deal could be a positive step forward in easing global perceptions of Korean hostility to foreign investors.

Big play for MBK

MBK Partners is a private equity firm that primarily invests in companies in the telecommunications, media, banking, financial services, heavy industrials, pharmaceuticals, consumer, healthcare, logistics, retail, technology, and business services sectors.

MBK manages about $8.2 billion in assets and was first founded by a group of former Carlyle Group LP executives in 2005 in Seoul with additional offices in Tokyo, Shanghai and Hong Kong.

The purchase of Homeplus marks a sizable step up for MBK.

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