[Edaily Marketin Reporter Hur Jieun ] Shinhan Financial Group continues to weigh its options regarding the acquisition of LotteNon-LifeInsurance(000400). Although the expected sale price of Lotte General Insurance has fallen to less than half of its previous level, there are calls to acquire the company for less than 1 trillion won, given the need to meet Shinhan Financial Group’s “value-up” criteria while also factoring in the burden of capital expansion following the acquisition. The price negotiations with JKL Partners, the largest shareholder that has already invested nearly 900 billion won in Lotte General Insurance, are expected to drag on.
According to financial and investment banking (IB) industry sources on the 25th, Jang Jeong-hoon, Executive Vice President and Chief Financial Officer (CFO) of ShinhanFinancialGroup Co.,Ltd., responded to a question about whether the company was proceeding with the acquisition of Lotte Insurance during a second-quarter earnings conference call held the previous day. “M&A is a game involving two parties,” he said, adding, “Since the other party’s stakeholders will certainly have their own perspectives, it may be a arduous process to find a delicate compromise.”
Although the holding company’s CFO has effectively confirmed the existence of the deal and the intention to proceed, the market views the hurdles Shinhan Financial must overcome before finalizing the acquisition of Lotte General Insurance as significant. Hints can be found in the phrasing used by CFO Jang himself, such as “compromise” and “arduous process.” These remarks imply that JKL Partners, the seller, and Shinhan Financial Group, the buyer, are engaged in intense strategic maneuvering behind the scenes.
The key issues, just as when Woori Financial Group abandoned the acquisition in the past, are price and the burden of additional capital. The enterprise value of Lotte Fire & Marine Insurance currently being discussed in the market is around 1 trillion won. This is less than half the level (2 trillion to 3 trillion won) cited back in 2024 when Woori Financial Group participated in the preliminary bidding and was considering the acquisition.
However, there is a clear sense within Shinhan Financial that the group is reluctant to commit more than 1 trillion won. This is because the cost would not be limited to the 1 trillion won required to acquire the stake; additional funds amounting to hundreds of billions of won would be needed to raise Lotte Fire & Marine Insurance’s capital adequacy ratio (K-ICS) to the group’s standards following the acquisition.
In particular, Shinhan Financial Group’s “Value-Up 2.0” plan—on which it has staked its very survival—is acting as a major constraint. When Shinhan Financial Group unveiled its Value-Up program last April, it established capital management guidelines committing to maintain a return on equity (ROE) of at least 10%, a shareholder return rate of at least 50%, and a Common Equity Tier 1 (CET1) ratio of at least 13% through 2028.
If funds totaling “1 trillion won + α”—comprising both the acquisition price and capital injection—are invested, risk-weighted assets (RWA) would surge, creating a risk of undermining the CET1 ratio or encroaching on funds allocated for shareholder returns. CFO Jang also drew a clear line, stating, “We will proceed with M&A within the scope that does not violate the Value-Up 2.0 principles,” and added, “Deals will only move forward when we are confident that they fall within a range where ROE improves while maintaining a stable CET1 ratio.”
On the other hand, from the perspective of JKL Partners, the private equity fund (PEF) manager and major shareholder, a sale price of less than 1 trillion won is a red line that is difficult to accept. JKL Partners poured a total of 880 billion won into the acquisition of Lotte Fire & Marine Insurance in 2019 through a share purchase (373.4 billion won) and a capital increase (360 billion won). If the sale price falls below 1 trillion won, considering the opportunity cost of having fund capital tied up for over seven years as well as management fees, it would effectively become a loss-making deal with virtually zero control premium.
However, JKL Partners has also reaffirmed its determination to ensure the sale of Lotte General Insurance is finalized this year. Lotte Non-Life Insurance received a timely corrective measure (management improvement recommendation) last November due to deteriorating capital adequacy, but has since resubmitted a management improvement plan and is gradually restoring its capital ratio. In addition, CEO Kang Min-kyun has joined the Lotte Non-Life Insurance board as a non-executive director and is directly and indirectly involved in negotiations related to the sale.
An industry insider explained, “While Shinhan Financial Group has a clear rationale for strengthening its property and casualty insurance portfolio, it is unlikely to overpay at the expense of shareholder returns,” adding, “Ultimately, the point of compromise will be how much JKL is willing to concede on the acquisition price, given the burden of additional capital injections.”
