[THE INVESTOR] Lotte Group announced on April 26 that it would be shifting toward a holding company structure, combining the investment entities of its four major units into a single holding company.

Lotte Confectionery,  Lotte Shopping, Lotte Chilsung Beverage and  Lotte Food called separate meetings of its boards of directors to vote on decisions to split into investment and business entities, and to combine the investment entities together.

“The decision follows through on the promise to restructure governance at Lotte Group last year,” Lotte Group said in a statement. “It allows us to operate the group in a more transparent and effective way while demonstrating that Lotte plans to fulfill its social responsibilities.”

The creation of a single holding company will help to reduce the web of cross-holding ties between the four units, which is another of Lotte Group Chairman Shin Dong-bin's public pledges. The group had 416 cross-holding relationships in 2015, but this has been reduced to 67 to date.

Once the holding company decision is approved by shareholders in August and goes into effect in October, those ties will be further reduced to 18.

The four companies’ decision follows the plan for more transparent governance set forth by Shin last year after he wrested leadership of the group from his father and Lotte founder Shin Kyuk-ho, and his brother Shin Dong-joo.

The investment entities created by the splits will merge under Lotte Confectionery, the original unit that has grown into the current Lotte Group.

If Lotte Confectionery’s investment entity later pursues for a merger with Hotel Lotte, the current de facto holding company of the group, the move would give Chairman Shin Dong-bin a controlling stake over all of Lotte Group.

The streamlined governance comes ahead of the pursuit of a public listing by Hotel Lotte, though such efforts have been continually pushed back due to a string of troubles facing the group.

Lotte’s leaders have been embroiled in a family feud over leadership of the group, and indicted for embezzlement, tax evasion and corruption charges.

The falling sales of its major duty-free business due to the fallout from a political spat between Korea and China over the installment of a US anti-missile defense system have added to the company’s struggles.

With Shin Dong-bin firmly in power, the company will most likely seek to complete the initial public offering soon in order to reduce Japanese shareholders’ stake in Lotte, which has created a stigma toward the company among Korean consumers. 

By Won Ho-jung/The Korea Herald (hjwon@heraldcorp.com)