[Edaily Marketin Song Seung-Hyeon Reporter] The sale of Lotte Rental has cleared a major hurdle with the Fair Trade Commission’s approval of the business combination. This comes eight months after the acquisition bid began. Three months after the contract with Affinity Equity Partners (Affinity) was terminated last May due to the Fair Trade Commission’s rejection, Lotte signed a new agreement with Texas Pacific Group (TPG). With the buyer now being a firm that does not own any domestic car rental assets, the competition authority’s review was completed in a matter of days.

According to investment banking (IB) industry sources on the 2nd, the Fair Trade Commission notified Lexicon Korea Holdco—a subsidiary of the global private equity fund (PEF) TPG—of its approval for the acquisition of Lotte Rental shares the previous day. This comes just three weeks after Hotel Lotte and Busan Lotte Hotel signed a share purchase agreement (SPA) on the 11th of last month to sell a 61.18% stake (22,212,063 shares) in Lotte Rental for 1.3105 trillion won.

Affinity, Owner of SK Rent-a-Car, Faced Setback from Fair Trade Commission in January

TPG’s path to acquiring Lotte Rental was not without a setback. Initially, it was Affinity—also a global private equity firm—that had agreed to acquire Lotte Rental. Affinity owned SK Rent-a-Car, the second-largest player in the car rental industry, and had envisioned creating synergies by acquiring Lotte Rental, the industry leader.

However, on January 26, the Fair Trade Commission prohibited the merger that would have allowed Affinity to acquire a 63.5% stake in Lotte Rental. The commission determined that, given Affinity’s existing ownership of SK Rent-a-Car—the second-largest player—acquiring the market leader as well would result in a combined market share ranging from 21.3% to 38.3% across various segments, creating an excessively wide gap with third- and lower-ranked operators. Another reason cited was that, given the nature of private equity funds—which typically plan to sell their holdings after a certain period—behavioral measures such as price-hike restrictions would be difficult to enforce effectively. At the time, the market did not consider the possibility of rejection to be high.

The card Affinity played was to renegotiate the acquisition price. Since the only practical way to alleviate monopoly concerns was to put SK Rent-a-Car—which it had acquired only two years earlier—back on the market, Affinity demanded that the opportunity costs and sunk costs associated with this be reflected in the acquisition price for Lotte Rental. As negotiations dragged on, the Lotte Group approached multiple private equity funds to gauge their interest in acquiring Lotte Rental. The response was skeptical. The contract between Affinity and Lotte was ultimately terminated last May.

TPG, Lacking Car Rental Assets, Secures Approval in Just Three Weeks

The race to acquire Lotte Rental, which had been quiet since then, gained momentum with the emergence of TPG. Since TPG has no domestic car rental assets, the horizontal merger that had blocked the Affinity deal does not apply in this case. However, some observers noted that the review criteria were not entirely empty. TPG has invested approximately 600 billion won in two rounds—in 2017 and 2021—and is now the second-largest shareholder of Kakao Mobility. Since this would create a structure in which TPG holds a taxi-hailing platform on one side and the leading car rental operator and car-sharing service (Green Car) on the other, analysts noted that the outcome of the review could vary depending on whether the car rental market and the hailing platform are viewed as separate markets or as adjacent markets that overlap in terms of mobility demand.

The Fair Trade Commission (FTC) did not side with the latter view. Under the Fair Trade Act, if the acquisition of shares does not establish a controlling relationship or if the complementarity or substitutability between business areas is weak, the transaction is deemed not to restrict competition and is thus exempt from general review. The FTC determined that, since TPG primarily operates in the domestic private equity sector and the infant nutrition market, while Lotte Rental primarily operates in the car rental market, there is no complementarity or substitutability between the two markets. In the approval notice, Kakao Mobility was not mentioned as part of TPG’s business scope. This aligns with the interpretation that, having failed to secure an exit opportunity even as the investment enters its ninth year, TPG lacks the capacity to bundle the two assets and design medium- to long-term business synergies.

In particular, Sejong Law Firm, which provided legal counsel to TPG on this merger, has successfully redeemed itself after the Affinity case. Sejong had previously stepped in as a “relief pitcher” to handle the work after a competing law firm’s application for the Affinity merger review was rejected. Although Sejong was ultimately unable to resolve the merger issues, leading to the termination of the Affinity deal, it secured merger approval swiftly in this TPG case.

The proceeds from the sale will be channeled into Lotte Group’s liquidity. It is reported that the funds will be used to improve the financial soundness of Hotel Lotte and Busan Lotte Hotel, renovate domestic properties, and strengthen the group’s capabilities in operating premium brands.