Lotte Rental Tender Offer: 59,000 Won a Share, Delisting Ahead

A company controlled by U.S. private equity firm TPG has launched a cash tender offer for the remaining 38.83% of Lotte Rental, offering 59,000 won per share until December 3. The stated goal is to take the Korean car and equipment rental company private by delisting it from the stock exchange. The filing says the money for the offer, up to about 831.7 billion won if every target share is bought, will be borrowed rather than paid from the buyer's own cash. This post explains how a tender offer works, how the price compares with the market, how the financing is structured and what the filing says will happen next.

How the tender offer works

A tender offer is a public proposal to buy shares directly from shareholders at a stated price during a stated period. Unlike buying on the exchange, the buyer announces the price, the number of shares and the deadline in advance, and shareholders decide whether to sell. The buyer is Lexicon Korea Holdco, a special purpose company TPG created to acquire Lotte Rental. It filed its tender offer statement with Korea's financial regulator on November 6, the same day the offer opened.

The offer covers 14,097,325 common shares, or 38.83 percent of the 36,309,388 shares outstanding. The buyer already holds 22,212,063 shares, or 61.17 percent. If every remaining share is tendered, the buyer will own 100 percent. The offer runs for 28 days through December 3, and payment is scheduled for December 7. The filing says the buyer will purchase every share tendered regardless of how many are tendered, and sets no minimum.

Reading the 59,000 won price

The offer price equals the per-share price in the share purchase agreement TPG signed on August 11 with Hotel Lotte and Busan Lotte Hotel. Under that agreement, TPG completed the purchase of their 61.17 percent stake on October 30 for about 1.31 trillion won and became the largest shareholder. The filing says the identical price is meant to give ordinary shareholders a chance to exit at the same value as the controlling stake.

Lotte Rental closed at 52,900 won on November 5, the day before the offer opened, according to news reports. By a simple calculation, 59,000 won is about 11.5 percent higher. The filing's six-month trading table shows the lowest monthly closing price this year was 27,300 won in June, so the shares had already risen about 94 percent from that low to the November 5 close.

Where the money comes from

Under the funding section of the filing, the buyer lists no equity and 831,742,175,000 won in borrowings. The lenders are KB Securities and Woori Bank, the interest is a fixed rate starting at 5.85 percent a year, and the loan matures on October 30, 2031. The collateral includes a first-ranking pledge over all the Lotte Rental shares the buyer owns. Some news reports described the funding as mostly TPG fund capital, but the filing itself lists the tender offer money as borrowed.

As a simple illustration, assuming the full 831.7 billion won is borrowed at 5.85 percent for one year, interest would be about 48.7 billion won, or more than 130 million won a day. That is not the interest actually paid, since the repayment schedule and final rate are not disclosed in the filing. It does show the scale of the obligation, and it explains why Lotte Rental's future cash generation will matter for the structure.

What happens after the offer

Delisting means the stock stops trading on the exchange. The filing says the follow-up steps will depend on the tender results and on whether the legal requirements are met. If they are, the buyer may carry out a comprehensive share exchange, a squeeze-out of remaining minority shareholders or a reverse stock split to complete the delisting and make Lotte Rental a wholly owned subsidiary.

Shareholders can tender through KB Securities branches or its online trading systems between 9:00 a.m. and 3:30 p.m. during the offer period, and the filing warns that the final day may be crowded. Shares held at other brokers must first be moved to a KB Securities account. Tendered shares are locked until the payment date, but tenders can be withdrawn in whole or in part before the offer ends without any penalty.

About Lotte Rental

Lotte Rental rents cars on short and long terms and sells used cars, and it also rents office equipment, measuring instruments, robots and construction equipment. Its domestic corporate bond rating is A+. It traces its roots to a company founded in 1986 and was renamed Lotte Rental in 2015. Earlier, private equity firm Affinity Equity Partners tried to buy the company, but Korea's antitrust regulator blocked the deal, according to reports.

Key terms

A tender offer is a public offer to buy shares from shareholders at a fixed price and period. A special purpose company is an entity created for a single transaction, here the acquisition of Lotte Rental. A pledge is a security right over assets that a lender can use if a loan is not repaid.

The bottom line

TPG's vehicle is offering 59,000 won a share for the last 38.83 percent of Lotte Rental through December 3, about 11.5 percent above the November 5 close, to delist and fully own the company. Up to 831.7 billion won, if every target share is bought, comes from loans secured on Lotte Rental shares. The next things to watch are the offer closing on December 3 and the tender results afterward, then the delisting steps.

Sources: Lexicon Korea Holdco, Lotte Rental, Korea Exchange