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Lotte's new confectionery chief aims high with IPO plans

Sweets unit disputes impact from group infighting as it looks to add brands

Lotte chocolate bars on a shelf at a supermarket in Osaka.   © Reuters

TOKYO -- A revamped confectionery unit in the Lotte conglomerate spanning Japan and South Korea wants to go public eventually, its new president said Friday, but the snacks and ice cream producer may find the path to listing anything but short and sweet.

The new Lotte Co., recreated Sunday through its absorption of sales companies Lotte Shoji and Lotte Ice Cream, will "tear down the walls of business divisions to speed decision-making and prioritize some investments over others," President Eiichi Gocho, formerly senior managing officer of Lotte Shoji, told reporters.

Lotte has outlined vigorous earnings targets, aiming to boost sales 50% to 500 billion yen ($4.67 billion) in several years and lift operating margin 2 percentage points to 10%.

The Tokyo company intends to achieve these goals by expanding its blockbuster portfolio of chocolate, chewing gum and other items generating 10 billion yen in annual revenue to 10 brands from the current four. It is focusing on the Asian market and seeks to ring up 20% of all sales abroad, an increase from 12% at present.

"We have set our sights on going public," Gocho said. But he did not commit to a timeline, saying that "we don't have a sufficient governance structure, so we're going to take the time to make preparations without rushing."

Eiichi Gocho is the new president of candymaker Lotte Co., which intends to boost revenue by more than doubling its confectionery brands. (Photo by Kaisuke Ohta)

One governance problem involves the complex group ownership structure. Lotte Holdings, the candymaker's parent, continues to count an asset management company for the founding Shin family as a big shareholder. The holding company also controls the majority of Lotte Hotels & Resorts, a core member of the group in South Korea.

Going public would free the snack maker from the tangled web of shareholdings between the two countries and ease the process of devising its own growth strategies. But the new Lotte Co. would face challenges in getting the green light for listing.

Lotte Holdings Vice Chairman Shin Dong-bin, the second son of group founder Shin Kyuk-ho, received a 30-month prison sentence from a Seoul court in February on charges of bribing Park Geun-hye, the ousted South Korean president. Shin Dong-bin, who maintains his innocence, was stripped of his representation rights as vice chairman but retains his title, and this issue seems sure to be put under a microscope during any listing screening for Lotte Co.

The battle between the disgraced executive and his older brother, Shin Dong-joo, over management rights of the group raises another red flag. The older brother long oversaw Lotte's operations in Japan while the younger Shin led the business in South Korea. The sibling dispute in 2015 led to the dismissal of Shin Dong-joo as vice chairman of Lotte Holdings. He has since taken legal action to seek damages and restoration of his position.

The conflict may reignite at the upcoming Lotte Holdings shareholders meeting in June if Shin Dong-joo demands that directors -- including his younger brother -- be held accountable, or if he tries to bring to his side the company's employee shareholdings association, a major shareholder.

Gocho dismissed any impact of the infighting on his company.

"The new Lotte was launched with new leadership, so we're not worried," Gocho said Friday. His remarks are based on the candymaking business in Japan having been run by Lotte Holdings President Takayuki Tsukuda, an outsider to the Shin family. But investors are certain to watch Lotte's governance closely.

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