eBay puts South Korean unit up for sale in $4 bn deal

  • 2020-03-04

eBay Inc. has decided to sell 100% of its South Korean operations which it valued at about 5 trillion won ($4 billion), the latest in a series of reorganization efforts after the US hedge fund Elliott Management Corporation urged the e-commerce giant in 2019 to focus on its core market.

eBay Korea is the country’s largest online platform company with three popular online shopping malls of Gmarket, eBay Auction and G9.

Unlike loss-making domestic rivals including SoftBank-backed Coupang Corp., it has produced a steady stream of profits over the past 15 years with a combined transaction value of 16 trillion won per year.

The company has begun tapping potential buyers but has yet to pick a sale manager, according to industry sources on March 3.

An eBay Korea spokesman told the Korean Investors on March 4 that the company had no knowledge of the planned sale.

Since Elliott called for a comprehensive portfolio review of eBay in January 2019, the company has accepted most of the requests by selling the ticket marketplace StubHub for $4 billion and opening discussion to sell eBay Classified-adds business. CEO Devin Wenig stepped down in September last year.

Goldman Sachs had worked for eBay in defending against Elliott.

eBay entered the South Korean market with the acquisition of then Auction Co. Ltd. in 2001. It then took over rival company Gmarket in 2009. Gmarket is targeting female shoppers in their 20s and 30s, while eBay Auction focuses on men in their 30s and 40s with digital products.

JUSTIFYING VALUATION

Industry observers question whether the asking price of 5 trillion won can be justified just because eBay Korea is the only profit-making e-commerce platform in the country with a market share of 12%.

The valuation is based on 0.3 times transaction value.

Its smaller rivals – 11Street of SK Group and WEMAKEPROFIT INC – were valued at 0.24 to 0.5 times transaction value when they raised capital from external investors in 2018 and 2019, respectively.

In comparison, SoftBank’s Vision Fund had applied a higher multiple of 1.4 times to invest $2 billion in Coupang in 2018, reflecting Coupang’s own distribution channel in Korea.

The market value of listed Lotte Shopping Co. Ltd., which comprises department store, supermarket, other offline shops and e-commerce businesses, was 2.8 trillion won at the market close on March 3.

A Lotte source said that the corporate value of e-commerce platforms was overstated in South Korea, adding: “we would see their bubbles burst in one or two years.”

Another discount factor is stagnant sales growth and falling profit margin, in tough competition from SoftBank-backed Coupang and newcomers such as Market Kurly, an online grocery delivery startup.

Despite the country’s online shopping value more than doubling in the past five years to 135 trillion won in 2019, annual transaction value at eBay Korea had remained at around 16 trillion won for the last three years.

Its operating profits tumbled to 48.5 billion won in 2018 from 80.1 billion won in 2015. Profit margins had halved to 4.9% during the period.

The prospective sale coincided with KKR & Co.’s plan to exit TMON Inc., another Korean online shopping platform, for about 1.3 trillion won. But talks with Lotte Group have stalled because of price differences.

POTENTIAL CANDIDATES

Potential buyers include Korean retail giants Lotte, Shinsegae and Hyundai Department Store and private equity firms including MBK Partners, given their financial capabilities.

eBay Korea’s Gmarket and eBay Auction are open market operators connecting sellers and buyers for fees.

Their business model does not overlap with that of Korean retailers such as Lotte and Shinsegae which sell only their products through online platforms. It means any retailer buying eBay Korea would be able to maximize synergy effects from the combination.

Both Lotte and Shinsegae had considered investing in SK Group’s online platform 11Street in 2017 but withdrawn from negotiations because SK did not give up management rights.

Online transactions of Lotte and Shinsegae are worth about 8 trillion won and 4 trillion won per year, respectively.

eBay Korea had paid dividends in 2018 and 2019 for the first time, channeling a total of 300 billion won into its US parent company.

It stoked speculation that the US company was preparing to sell the Korean arm. But eBay dismissed the market talk at the time, saying that it had no reason to sell it.

By Jae-kwang Ahn

ahnjk@hankyung.com

<Edited by Yeonhee Kim>

(Modified on March 4 to drop the sale manager’s name from the fourth paragraph because it has yet to be determined.)