U.S.-based global private equity firm Texas Pacific Group (TPG) has signed a contract to acquire Lotte Rental, South Korea's largest car rental company, investing approximately KRW 1.3 trillion. Lotte Rental will become independent from Lotte Group after 11 years.

Deal Overview... 61.18% Stake, KRW 59,000 Per Share

The sale involves a 61.18% stake in Lotte Rental held by Hotel Lotte and Busan Lotte Hotel. Based on a per-share price of KRW 59,000, the total transaction value is KRW 1.3105 trillion. After the contract with Affinity, the preferred bidder, was terminated in May, Lotte Group conducted negotiations with multiple potential buyers and ultimately selected TPG as the final acquirer after a comprehensive evaluation of enterprise value, acquisition structure, employment stability, and financing capabilities. The transaction is expected to be finalized after undergoing a corporate combination review by the Korea Fair Trade Commission.

Petrochemical Slump and Debt Burden as Backdrop for Sale

The financial burden caused by the downturn in the petrochemical industry is behind Lotte Rental's entry into the sale market. As of the end of last year, the combined borrowings of Lotte Group's major affiliates reached KRW 29.933 trillion. Additionally, corporate bonds totaling KRW 3.343 trillion are scheduled to mature this year and next year across 11 listed affiliates, including Lotte Holding.

Lotte Group entered the car rental business by acquiring Kumho Rent-a-Car in 2010 and rose to the top of the industry in 2015 by acquiring KT Rental, the predecessor of Lotte Rent-a-Car.

Sale Proceeds to Be Used for Debt Repayment and Bio Investment

The funds secured through this sale are expected to have a positive impact on improving Lotte Group's liquidity and stabilizing its financial structure. Hotel Lotte and Busan Lotte Hotel plan to use the funds to repay borrowings and invest in the hotel business.

In particular, Hotel Lotte plans to utilize the sale proceeds as a major source of investment for affiliates such as Lotte Construction & Development and Lotte Biologics. Last year, it invested KRW 214.4 billion in Lotte Biologics, which is currently promoting the construction of a biopharmaceutical contract development and manufacturing organization (CDMO) facility, with an additional investment plan of KRW 464.4 billion scheduled for this year and next.

TPG Invests Entirely with Equity Without Borrowing... No LBO Used

TPG plans to invest entirely with its own equity without bank borrowings in this acquisition. This measure is interpreted as a choice for stability to prevent credit rating downgrades or rising financing costs, opting out of the leveraged buyout (LBO) method, which has faced public backlash following the Homeplus incident. After acquiring the stake in Lotte Group affiliates, TPG also plans to launch a tender offer for the remaining publicly traded shares of Lotte Rental.

TPG is a major investment firm managing approximately KRW 460 trillion in assets globally. Since it does not directly own a car rental business, there is little concern about restrictions on competition during the Korea Fair Trade Commission approval process. Previously, Affinity Equity Partners, which owns SK Rent-a-Car, the industry's second-largest player, attempted to acquire Lotte Rental but the deal fell through after failing to secure Fair Trade Commission approval due to competition restriction issues.

TPG is the parent company of Newbridge Capital, which acquired Korea First Bank during the Asian financial crisis, and re-entered the Korean market in 2016 led by CEO Lee Sang-hoon. It also has extensive investment experience in innovative platform companies such as Uber, Airbnb, and Spotify.

TPG views Element Fleet Management of the United States as a benchmarking model for Lotte Rental. Element focuses on vehicle leasing for corporate and government clients, as well as the repair and management of leased vehicles, thereby achieving low earnings volatility and securing stable cash flows.

A Lotte official stated, "We selected the acquirer after comprehensively considering market conditions and the company's mid- to long-term growth strategy," adding, "We plan to focus on strengthening the competitiveness of our core businesses and advancing our business portfolio."