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Battle for eBay unit looks to reshape South Korean e-commerce

SK Telecom and Lotte among bidders seeking to catch up with market leaders

Workers process online orders at a distribution center inside a Lotte Mart in Seoul.  (Photo by Kotaro Hosokawa)

SEOUL -- A wide bidding war could erupt over eBay Korea, with South Korea's smaller e-commerce platforms seeing the purchase of the country's third-ranked player as their best hope to survive against the two leaders.

Top South Korean wireless carrier SK Telecom and retail groups Lotte and E-Mart are among the remaining suitors, a brokerage industry source says, as the preliminary round of bids sought by the U.S. parent closed March 16.

In 2000, eBay Korea launched online mall and web auction operations. The eBay subsidiary quickly grew in scale, capturing A-list vendors and loyal customers. Last year, the unit earned 85 billion won ($75 million) in operating profit on 1.3 trillion won in sales.

But eBay Korea has been squeezed in recent years by e-commerce leaders Naver and Coupang, while activist investors like Elliott Management have urged eBay to divest assets with poor growth prospects.

The U.S. parent reportedly seeks a deal worth 5 trillion won, a price that many initially thought would result in a bidding flop.

"It was overvalued compared to the weak growth potential of the South Korean business," a securities analyst said.

But then Coupang went public in the U.S. market on March 11 and scored a market capitalization topping $80 billion, raising $4.6 billion along the way. The money will be used to expand fulfillment centers, among other projects to improve the company's distribution network.

Coupang Founder and CEO Bom Kim, third from left, opens the New York Stock Exchange before his company's IPO on March 11.   © AP

Naver, which boasts the leading gross transaction value among South Korean e-commerce groups, has moved to fortify its distribution prowess through a partnership with delivery giant CJ Logistics.

Lower-ranked players regard purchasing eBay Korea as essential to avoid being left in the dust as the two biggest competitors grow.

The leading candidate is SK Telecom. The group also operates the online platform 11Street through a subsidiary, making SK Telecom the fourth-biggest e-commerce provider.

But 11Street has struggled to grow, leading SK Telecom to partner with Amazon.com in November. The collaboration initially will be limited to having 11Street host Amazon products, but SK Telecom looks to expand the scope of the tie-up.

A purchase of eBay Korea would instantly lift SK Telecom to the top in terms of gross transaction value. The company can anticipate synergy with the Amazon tie-up as well.

SK Telecom, whose mobile business enjoys a stable earnings structure, has worked to diversify away from telecommunications. In 2012, the company bought what is now SK Hynix, and the memory-chip maker has grown to be the group's biggest source of earnings.

Lotte, whose digital operations place fifth in e-commerce transactions, wants to buy eBay Korea and views the purchase as a springboard for rebuilding the group's online business. "We're certainly interested," Kang Hee-tae, CEO of Lotte Shopping, said during Tuesday's shareholders meeting.

Last April, the group merged the e-commerce sites of its department stores, supermarkets, electronics shops and other physical retail affiliates under one shopping platform: LotteON. But "we weren't able to realize the expected results," a Lotte executive said. The head of LotteON resigned last month, and no replacement has been picked.

E-Mart, which runs the largest chain of discount hypermarkets, eagerly threw its hat in the ring. The company's physical stores have experienced stalling sales amid strong competition from online-only rivals. A buyout of eBay Korea would jump-start E-Mart's e-commerce business, which came late in the game.

Also in the running is private equity group MBK Partners, whose portfolio includes Japanese coffee chain Komeda.

South Korea's e-commerce transactions jumped 25% last year to roughly 100 trillion won, the trade ministry said. Each year of steep growth adds to the influence of the market leaders. The top three e-commerce companies captured a combined 42% share by transaction value in 2020, data from Kyobo Securities shows, up 7 points from 2016.

Security industry sources think a bidding war could start in April. The winner will be decided as soon as summer.

"In internet retailing, it is key to attain scale and not lose the initiative," SK Securities analyst Yoo Seung-woo said, adding that "securing share through a purchase is highly meaningful" given the developing oligopoly.

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