🚨 Homeplus Sale Final Bid Approaching
Today Korean Economic News for Beginners | 2025.11.24
0️⃣ Risk of Liquidation if Acquisition Fails
📌 Two Letters of Intent Submitted but Insufficient Financial Capacity...Rehabilitation Plan Deadline Approaching
💬 With the final bid for Homeplus scheduled for the 26th, two acquisition candidates have submitted letters of intent, but whether this will actually lead to an acquisition remains uncertain. Critics point out that the companies expressing interest are small in size and lack sufficient financial capacity, making it highly likely they will fail to secure large-scale acquisition financing. What's more serious is that the deadline for submitting a rehabilitation plan is approaching, and if a suitable buyer cannot be secured, the court may terminate the rehabilitation proceedings and move to liquidation. Homeplus operates about 140 stores nationwide with approximately 20,000 employees, and countless partner companies and tenant store owners depend on it for their livelihoods. If liquidation occurs, the economic and social ripple effects are expected to be significant. Experts warn that "the bankruptcy of a large retail company goes beyond just one company's problem and can affect employment stability and entire local commercial areas."
1️⃣ Easy to Understand
Homeplus is facing a serious crisis. Homeplus, which is going through rehabilitation proceedings, needs to find a new owner to survive. But the situation doesn't look good ahead of the final bid on the 26th. There are companies that have expressed interest in buying, but there are questions about whether they actually have the ability to complete the acquisition.
First, let's understand what situation Homeplus is in. Homeplus was once a giant retailer that divided the Korean hypermarket market with E-Mart. It operates about 140 stores nationwide and has approximately 20,000 employees. However, in recent years, management has deteriorated and debt has accumulated, leading to rehabilitation proceedings.
What are rehabilitation proceedings? Simply put, it's a system where companies that can't properly repay their debts get a chance to normalize again with the court's help. It's similar to how an individual gets a chance to restructure their debt and start over with the court's help before going bankrupt. The most important thing in this process is creating and executing a rehabilitation plan, and for Homeplus, finding a new owner is the key.
The problem is that it's difficult to find a suitable company to acquire Homeplus. Two companies have submitted letters of intent, but they are assessed as having insufficient financial capacity. To acquire a large retail company like Homeplus, you need at least hundreds of billions of won, or even trillions of won. However, the companies that have emerged as acquisition candidates are too small to raise such large amounts of money.
Let me explain with an example. Let's say Mr. A wants to buy a building worth 10 billion won. Mr. A only has 1 billion won of his own money and needs to borrow the remaining 9 billion won from the bank. But if Mr. A has low credit and unstable income, the bank won't lend him the money. The Homeplus acquisition candidates are in a similar situation. If the company is small and its financial condition is poor, banks or investors may not lend them the acquisition funds.
What happens if they can't find a suitable buyer? If a buyer is not confirmed by the court-set deadline for submitting the rehabilitation plan, the court can terminate the rehabilitation proceedings. When rehabilitation proceedings are terminated, the next step is liquidation. Liquidation means no longer operating the company and selling all assets to distribute to creditors.
What happens if liquidation occurs? The first to be hit are the employees. About 20,000 employees working at Homeplus will lose their jobs. Not just hypermarket employees, but all people including headquarters staff and logistics center workers will be affected. Many of these are heads of households responsible for their families' livelihoods.
Second, partner companies and tenant store owners suffer great damage. Countless small and medium-sized businesses that supply goods to Homeplus, and tenant businesses like bakeries and restaurants operating in stores must all close. Since they also employ workers, the actual scale of damage could be much larger than Homeplus employees.
Third is the impact on local economies. Areas with Homeplus stores mostly have commercial districts formed around those stores. If Homeplus closes, surrounding stores will also struggle with fewer customers. Also, from a consumer standpoint, choices narrow, and especially in areas without other hypermarkets like E-Mart or Lotte Mart, people may face great inconvenience.
Why did Homeplus become so difficult? There are several reasons, but three main ones can be identified.
First, changes in the retail environment. As online shopping grew rapidly, customers visiting hypermarkets decreased. With dawn delivery services like Coupang and Market Kurly becoming popular, there's no need to go buy heavy items in person. Homeplus failed to properly respond to this change.
Second, excessive debt. Homeplus accumulated a lot of debt after being sold to a foreign private equity fund. When private equity funds acquire companies, they use more borrowed money than their own money, and this debt remains as a burden on the acquired company. Homeplus couldn't make new investments while repaying this debt, and its competitiveness declined.
Third, intensifying competition. E-Mart strengthened its online business and succeeded with cost-effective brands like No Brand. Lotte Mart persevered by creating synergy with other Lotte Group businesses. In contrast, Homeplus failed to create independent strengths.
So why is it hard to find a buyer? Homeplus is large in scale but has low profitability and high debt. Operating 140 stores requires enormous manpower and costs, but it's difficult to make that much money. Moreover, with the growth of online shopping, the hypermarket market is expected to shrink further. In this situation, it's not easy to find a company willing to invest trillions of won to acquire Homeplus.
We also need to understand the concepts of liquidation value and going concern value. Liquidation value is the money you can get when you close the company and sell all buildings, equipment, and inventory. Going concern value is the present value of money the company can earn in the future if it continues operating. If liquidation value is higher than going concern value, it's more beneficial to liquidate than to continue operating the company.
In Homeplus's case, liquidation value is estimated to be quite high because it has a lot of real estate and equipment nationwide. On the other hand, going concern value may be relatively low due to low profitability. In this situation, the court may also judge that liquidation is more reasonable than rehabilitation.
Acquisition financing is also a big obstacle. To acquire a large company like Homeplus requires trillions of won, and there are almost no companies that can cover this entirely with their own money. Therefore, most need to borrow money from banks or investors, which is called acquisition financing.
But now is a difficult environment to receive acquisition financing. First, because interest rates are high, borrowing costs are high. Second, banks are reluctant to lend money because Homeplus's outlook is uncertain. Third, if the acquisition candidates' creditworthiness is low, it becomes even more difficult. In the end, even if there's acquisition intent, many cases give up acquisition because they can't actually secure funds.
Ultimately, Homeplus's fate will be decided at the final bid on the 26th. If no company with substantial acquisition capability appears, the jobs of 20,000 people and the survival of countless partner companies will be in jeopardy. This is a case showing how one company's crisis affects society as a whole.
2️⃣ Economic Terms
📕 Rehabilitation Proceedings
Rehabilitation proceedings are a legal system where financially troubled companies attempt to restructure debt and normalize under court supervision.
- It's a system that gives companies a chance to survive before bankruptcy, reducing debt or extending repayment periods with creditors' consent.
- A manager appointed by the court manages the company, and must establish and execute a rehabilitation plan within a certain period.
- If the rehabilitation plan fails or is not submitted, rehabilitation proceedings can be terminated and move to liquidation procedures.
📕 Liquidation Value
Liquidation value is the total amount that can be obtained when disposing of all assets without operating the company any longer.
- It means the value when selling all assets the company has on the market, including buildings, land, equipment, inventory, and patents.
- If liquidation value is higher than going concern value (value when continuing to operate the company), liquidation may be more reasonable.
- Companies with many real estate assets like Homeplus tend to have relatively high liquidation values.
📕 Letter of Intent
A letter of intent is a document formally expressing interest in acquiring a company.
- It's a step before participating in the final bid, and while it has weak legal binding force, it's a procedure expressing serious acquisition intent.
- Just because a letter of intent is submitted doesn't necessarily mean acquisition will occur, and actual acquisition capability must be verified.
- If financial capacity is insufficient or acquisition financing fails, acquisition can be abandoned even after submitting a letter of intent.
📕 Acquisition Financing
Acquisition financing means borrowing funds needed for corporate acquisition from banks or investors.
- Most corporate acquisitions are accomplished by combining the acquirer's equity capital and borrowed money (debt).
- Assets of the target company are provided as collateral, or cash flows to be generated after acquisition are presented as repayment sources.
- If interest rates are high or the target's outlook is uncertain, it's difficult to receive acquisition financing.
3️⃣ Principles and Economic Outlook
✅ Dilemma of Liquidation Value and Going Concern Value
The most important criterion in rehabilitation proceedings is evaluating whether continuing to operate the company is better than liquidation.
First, if liquidation value is high, rehabilitation becomes difficult. Homeplus operates about 140 stores nationwide and holds considerable real estate assets. In particular, hypermarket buildings and land in Seoul and the metropolitan area have high market values. Selling all these assets could secure trillions of won in cash. The problem is that the profit Homeplus can earn by continuing operations is not sufficient enough to justify this asset value. The retail industry is a low-margin industry, and the profitability of offline stores continues to deteriorate with online shopping growth. From the court's and creditors' perspective, they may think "isn't it better to sell assets now and recover claims rather than continuing to operate the company and earning money little by little?"
Second, improving profitability is essential to increase going concern value. To maintain rehabilitation proceedings, it must be proven that Homeplus can generate sufficient profits in the future. This requires restructuring such as eliminating unnecessary stores, focusing on highly profitable stores, strengthening online business, and improving logistics efficiency. However, such changes take time and cost. Moreover, competitors aren't standing still. E-Mart has already succeeded in online transformation, and Coupang and Market Kurly have dominated the market with dawn delivery. In this competitive environment, it's very difficult for Homeplus to recover profitability.
Third, liquidation value may also decline over time. If rehabilitation proceedings are prolonged, store facilities become outdated, brand value declines, and excellent personnel leave. Also, during rehabilitation proceedings, it's difficult to make new investments, making competitiveness decline further. Ultimately, as time passes, the money that can be received when liquidated also decreases. Therefore, the court and creditors may judge that "liquidating now is better than liquidating later."
If the balance point between liquidation value and going concern value cannot be found, rehabilitation proceedings themselves become meaningless.
✅ Reality and Constraints of Acquisition Financing
To acquire a large retail company requires funds in the trillions of won, but raising this in the current financial environment is very difficult.
First, the high interest rate environment makes acquisition financing difficult. With the current base rate maintained in the 3% range, companies must pay interest of 5-6% or more when borrowing from banks. If they borrow 1 trillion won, interest alone is 50-60 billion won annually. If Homeplus's operating profit isn't sufficient enough to cover this interest, it will immediately face difficulties due to interest burden after acquisition. Banks also know this, so they're reluctant to lend. Especially after COVID-19, as corporate loan defaults increased, banks are conducting loan reviews more strictly.
Second, the financial capacity of acquisition candidates is key. What banks look at most importantly when providing acquisition financing is the acquirer's creditworthiness and financial condition. If the acquirer has sufficient equity capital, creates stable cash flow from other businesses, and has a good past credit history, it's easy to receive acquisition financing. However, the companies that submitted letters of intent this time are small in size and their financial condition is unclear. There are almost no banks that will lend trillions of won to such companies. In fact, there have been many cases in the past where companies expressed acquisition intent but gave up because they couldn't receive acquisition financing.
Third, the reliability of collateral and repayment plans is important. Acquisition financing usually provides assets of the target company as collateral. In Homeplus's case, there's collateral value because it has many real estate assets. However, banks don't just look at collateral, but more importantly whether the company can operate normally after acquisition and repay interest and principal. If Homeplus's profitability is low and its outlook is uncertain, they may refuse loans no matter how good the collateral is. Also, multiple banks often form syndicates to jointly lend, and if even one bank is negative in this process, the entire acquisition financing can fall through.
Failure to secure acquisition financing means failure of the acquisition itself, which jeopardizes the entire rehabilitation process.
✅ Chain Effects of Large Retail Network Bankruptcy
One company's bankruptcy doesn't just end with that company's problem but creates a chain of shocks across the economy.
First is the direct employment shock. Most of Homeplus's 20,000 employees are middle-aged people in their 40s and 50s, and many are the main income earners of their families. If they lose their jobs, their livelihoods are threatened, and children's education or retirement preparation becomes difficult. Moreover, retail industry jobs are not easy to transfer to other industries. Especially store employees often lack professional skills, making re-employment difficult. In fact, there were cases in the early 2000s where employees of bankrupt hypermarkets had great difficulty finding re-employment.
Second is the collapse of partner companies and supply chains. Small and medium-sized businesses supplying to Homeplus depend on Homeplus for a significant portion of their sales. If Homeplus is liquidated, these companies' sales plummet sharply, and in serious cases, it can lead to chain bankruptcies. Also, tenant businesses in Homeplus stores, such as bakeries, coffee shops, optical stores, and clothing stores, must all close. When you add people working at these businesses, the scale of damage becomes much larger. According to Bank of Korea estimates, when one large retail company collapses, more than 50,000 jobs are affected directly and indirectly.
Third is the impact on local commercial areas and consumers. Areas with Homeplus stores have commercial districts formed around those stores. If Homeplus closes, foot traffic decreases and surrounding stores also see sales decline. Especially in small and medium-sized provincial cities, Homeplus is often the only hypermarket, and in these areas, if Homeplus disappears, residents face the inconvenience of having to travel long distances to shop. Also, with less competition, remaining retailers may raise prices, potentially having a negative impact on consumer prices.
Bankruptcy of a large retail network is not simply the failure of one company but a crisis situation requiring a social safety net.
4️⃣ In Conclusion
With the Homeplus final bid approaching, the Korean retail industry stands at a critical crossroads. If no company with substantial acquisition capability appears at the final bid scheduled for the 26th, Homeplus is highly likely to move to liquidation procedures.
This incident teaches several lessons. First, excessive corporate debt ultimately becomes poison. Homeplus's financial structure deteriorated due to excessive borrowing after being acquired by a foreign private equity fund, and this was the main reason it reached the point of being unable to rehabilitate. Second, digital transformation in retail is not a choice but a matter of survival. Overlooking online shopping growth and relying only on offline stores led to loss of competitiveness.
Third, bankruptcy of large companies is a social problem beyond just economic loss. Because 20,000 jobs, numerous partner companies, and local economies are all connected, it's an issue that the government and society must pay attention to and respond to.
If Homeplus is liquidated, the government must strengthen social safety nets such as unemployment measures, re-employment support, and partner company support. Especially since re-employment of middle-aged employees is not easy, job training programs and livelihood support are needed.
Conversely, if a suitable buyer appears and Homeplus succeeds in rehabilitation, it will be a positive signal for the Korean retail industry. However, looking at the current situation, this optimistic scenario doesn't seem easy.
Individual consumers should also pay attention to this incident. If hypermarkets decrease, choices narrow, and the oligopoly of online platforms may strengthen. In the long term, it may also affect consumer prices.
Ultimately, the Homeplus incident goes beyond one company's crisis and is becoming an opportunity to look back on structural problems of the Korean economy and the future of the retail industry. Regardless of how the final bid results turn out on the 26th, through this incident we have once again confirmed the challenges of improving corporate governance, accelerating digital transformation, and strengthening social safety nets.
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