Chairman Chung's emart stake acquisition
needs to factor in W12 trillion net debt
"Divest non-core assets to reduce debt"
“To be accountable, Chung should assume a registered directorship (as an inside director)
and face shareholder evaluation"
On January 10th, the Shinsegae Group disclosed that Chairman Chung Yongjin will acquire an additional 10% stake in emart from his mother, Senior Group Chair Lee Myounghee, for approximately W214 billion. The transaction price was set at W76,800 per share, representing a 20% premium over the previous day's closing price of W64,000. Unfortunately, the premium applies solely to this related-party transaction between Chung family and does not establish a precedent for market valuations or offer similar pricing to minority shareholders. The transaction, anticipated to finalize in mid-March, will increase Chairman Chung's stake from 19% to 29%, solidifying his position as the controlling shareholder. Shinsegae Group commented that this stake acquisition reflects Chairman Chung's commitment to enhancing corporate value through performance-based management and demonstrates his confidence in emart’s future prospects to the market.
Since Chairman Chung’s appointment as the Group Chairman on March 8, 2024, emart's share price has declined by 9%, while net debt has expanded by W1 trillion within a nine-month period, exceeding W12 trillion. After accounting for cash and cash equivalents of W2.1 trillion, the total debt of W14.2 trillion results in a net debt of W12.1 trillion. Companies with substantial debt burden typically find it difficult to increase share price until they actively address their debt obligations. Emart's current financial profile, with debt representing 87% of enterprise value compared to a mere 13% (W1.8 trillion) market cap, signals substantial market concern regarding the company's financial health and cash flow generation. A net debt-to-market cap ratio of 7x is alarmingly high and clearly unsustainable in the long term.
While the cash outlay for Chairman Chung in this transaction is W76,800 per share (equivalent to a PBR of 0.2x), the true acquisition price, considering the debt assumption, is approximately W14 trillion in enterprise value or W510,000 per share. To use an analogy, it's like buying a W1 billion apartment while only paying W130 million of your own money (equity) and borrowing W870 million from the bank (debt). Although the apartment is under your name, the purchase price is W1 billion, not W130 million, and you will eventually have to repay the nearly W900 million debt.
Emart shareholders have suffered significant financial losses. Over the past five years, emart's share price has plummeted by 46%, and by 70% over the past ten years. This decline is attributed to Chairman Chung's reckless management, numerous failed M&A deals reliant on debt, and a lack of effective strategies to counter the rise of e-commerce giants like Coupang. This is a severe balance sheet problem that cannot be resolved through one-off restructuring, CEO changes, or cost-cutting measures. In Chairman Chung's 2025 New Year's address video, he emphasizes "core business competitiveness" and "innovative DNA," but debt reduction and governance improvement are the most urgent priorities.
We urge Chairman Chung work with the emart management and board of directors in implementing the following;
1. Chairman Chung should be nominated as an inside director at the annual general shareholders' meeting in March of this year, with shareholder approval. Until now, Chairman Chung has not been a registered director for more than ten years, thus avoiding legal responsibility for the company's operational missteps and mounting debt while receiving significant compensation.
2. The board should, from the perspective of their fiduciary duty, review the appropriateness of salary and compensations to Chairman Chung and his parents, considering the significant shareholder losses and deteriorating management performance over the past one, three, and five years. It is necessary to verify the appropriateness of the W700 million bonus paid to Chairman Chung, as disclosed in the semi-annual report. Furthermore, if Chairman Chung's father, Honorary Chairman Chung Jaeeun, and mother, Senior Group Chair Lee Myunghee, are not working "full-time", it is necessary to assess whether W900 million salary is appropriate, which is 50% higher than CEO Han Chae-yang's W600 million.
3. The company should focus on reducing debt through non-core asset sales. Emart has executed numerous M&A deals over the past several years, financed by trillions of won in debt. Many of these deals were unrelated to emart's core business, including the acquisition of three wineries in the US. Moreover, the acquisition of Starbucks Coffee Korea, was made hastily and at unfavorable terms, in our view. Acquisitions based on Chairman Chung's personal interests or preferences, like the U.S. wineries, should be financed personally, not with shareholders’ money. As a result, acquisition write-offs totaled W159.2 billion in 2023. By divesting unrelated affiliates and focusing on its core business to repay debt, emart may have a better chance of recovery.
4. The board of directors needs a significant upgrade. The current four outside (independent) directors are from powerful authoritative institutions (National Tax Service, Board of Audit and Inspection, Prosecutor's Office, Law firm Kim & Chang) and lack expertise in consumer/retail, strategy, finance, or governance. Appoint "independent directors" with a deep understanding of consumer trends, retail strategy, and IT who will work for the benefit of shareholders.
5. The company must announce a “value-up plan” and create alignment through introduction of equity-based compensation. Emart’s sister company Shinsegae announced a meaningful corporate value-up plan at the end of 2024 that, while still insufficient, represented an acknowledgment of its problems. Emart's board of directors should recognize the cost of capital (or required rate of return from the shareholder's perspective) and establish principles for capital allocation. At the same time, the adoption of RSUs for the CEO and other executives will foster greater alignment between management, shareholders, and the board.
January 16, 2024
Korean Corporate Governance Forum
Chairman,
Namuh Rhee
Chairman Chung's emart stake acquisition
needs to factor in W12 trillion net debt
"Divest non-core assets to reduce debt"
“To be accountable, Chung should assume a registered directorship (as an inside director)
and face shareholder evaluation"
On January 10th, the Shinsegae Group disclosed that Chairman Chung Yongjin will acquire an additional 10% stake in emart from his mother, Senior Group Chair Lee Myounghee, for approximately W214 billion. The transaction price was set at W76,800 per share, representing a 20% premium over the previous day's closing price of W64,000. Unfortunately, the premium applies solely to this related-party transaction between Chung family and does not establish a precedent for market valuations or offer similar pricing to minority shareholders. The transaction, anticipated to finalize in mid-March, will increase Chairman Chung's stake from 19% to 29%, solidifying his position as the controlling shareholder. Shinsegae Group commented that this stake acquisition reflects Chairman Chung's commitment to enhancing corporate value through performance-based management and demonstrates his confidence in emart’s future prospects to the market.
Since Chairman Chung’s appointment as the Group Chairman on March 8, 2024, emart's share price has declined by 9%, while net debt has expanded by W1 trillion within a nine-month period, exceeding W12 trillion. After accounting for cash and cash equivalents of W2.1 trillion, the total debt of W14.2 trillion results in a net debt of W12.1 trillion. Companies with substantial debt burden typically find it difficult to increase share price until they actively address their debt obligations. Emart's current financial profile, with debt representing 87% of enterprise value compared to a mere 13% (W1.8 trillion) market cap, signals substantial market concern regarding the company's financial health and cash flow generation. A net debt-to-market cap ratio of 7x is alarmingly high and clearly unsustainable in the long term.
While the cash outlay for Chairman Chung in this transaction is W76,800 per share (equivalent to a PBR of 0.2x), the true acquisition price, considering the debt assumption, is approximately W14 trillion in enterprise value or W510,000 per share. To use an analogy, it's like buying a W1 billion apartment while only paying W130 million of your own money (equity) and borrowing W870 million from the bank (debt). Although the apartment is under your name, the purchase price is W1 billion, not W130 million, and you will eventually have to repay the nearly W900 million debt.
Emart shareholders have suffered significant financial losses. Over the past five years, emart's share price has plummeted by 46%, and by 70% over the past ten years. This decline is attributed to Chairman Chung's reckless management, numerous failed M&A deals reliant on debt, and a lack of effective strategies to counter the rise of e-commerce giants like Coupang. This is a severe balance sheet problem that cannot be resolved through one-off restructuring, CEO changes, or cost-cutting measures. In Chairman Chung's 2025 New Year's address video, he emphasizes "core business competitiveness" and "innovative DNA," but debt reduction and governance improvement are the most urgent priorities.
We urge Chairman Chung work with the emart management and board of directors in implementing the following;
1. Chairman Chung should be nominated as an inside director at the annual general shareholders' meeting in March of this year, with shareholder approval. Until now, Chairman Chung has not been a registered director for more than ten years, thus avoiding legal responsibility for the company's operational missteps and mounting debt while receiving significant compensation.
2. The board should, from the perspective of their fiduciary duty, review the appropriateness of salary and compensations to Chairman Chung and his parents, considering the significant shareholder losses and deteriorating management performance over the past one, three, and five years. It is necessary to verify the appropriateness of the W700 million bonus paid to Chairman Chung, as disclosed in the semi-annual report. Furthermore, if Chairman Chung's father, Honorary Chairman Chung Jaeeun, and mother, Senior Group Chair Lee Myunghee, are not working "full-time", it is necessary to assess whether W900 million salary is appropriate, which is 50% higher than CEO Han Chae-yang's W600 million.
3. The company should focus on reducing debt through non-core asset sales. Emart has executed numerous M&A deals over the past several years, financed by trillions of won in debt. Many of these deals were unrelated to emart's core business, including the acquisition of three wineries in the US. Moreover, the acquisition of Starbucks Coffee Korea, was made hastily and at unfavorable terms, in our view. Acquisitions based on Chairman Chung's personal interests or preferences, like the U.S. wineries, should be financed personally, not with shareholders’ money. As a result, acquisition write-offs totaled W159.2 billion in 2023. By divesting unrelated affiliates and focusing on its core business to repay debt, emart may have a better chance of recovery.
4. The board of directors needs a significant upgrade. The current four outside (independent) directors are from powerful authoritative institutions (National Tax Service, Board of Audit and Inspection, Prosecutor's Office, Law firm Kim & Chang) and lack expertise in consumer/retail, strategy, finance, or governance. Appoint "independent directors" with a deep understanding of consumer trends, retail strategy, and IT who will work for the benefit of shareholders.
5. The company must announce a “value-up plan” and create alignment through introduction of equity-based compensation. Emart’s sister company Shinsegae announced a meaningful corporate value-up plan at the end of 2024 that, while still insufficient, represented an acknowledgment of its problems. Emart's board of directors should recognize the cost of capital (or required rate of return from the shareholder's perspective) and establish principles for capital allocation. At the same time, the adoption of RSUs for the CEO and other executives will foster greater alignment between management, shareholders, and the board.
January 16, 2024
Korean Corporate Governance Forum
Chairman,
Namuh Rhee