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Starbucks to exit South Korea venture valued at more than US$2 billion

Starbucks to exit South Korea venture valued at more than US$2 billion

FILE PHOTO: A Starbucks sign is shown on one of the company's stores in Los Angeles, California, U.S. October 19, 2018. REUTERS/Mike Blake

Starbucks is exiting its joint venture in South Korea, the US coffee giant's fifth-largest market, selling a part of its stake to local partner E-Mart and the rest to Singapore's sovereign wealth fund, GIC.

E-Mart, one of the largest retailers in South Korea that currently owns half of the joint venture, will buy an additional 17.5 per cent stake for US$411 million, it said in a filing on Tuesday (Jul 27). It will operate the Starbucks stores. GIC will own the remaining 32.5 per cent.

This suggests a US$2.35 billion valuation for the entire business, and that GIC will pay more than US$700 million for its stake, according to Reuters calculations.

GIC declined to comment on the deal value.

Starbucks said the deal is expected to be completed over the next 90 days.

"South Korea continues to be an important market for Starbucks," Michael Conway, Starbucks' group president for international and channel development said in a statement on Tuesday.

READ: Hit by COVID-19 cases, Starbucks Korea cuts seat capacity, delays event

"Part of our success in South Korea - and in many of our international markets - is due to our expertise and judgment in knowing when to rely on local partners to continue to build the business."

With more than 1,500 stores across 78 cities, Starbucks Coffee Korea's operating profit surged nearly three-quarters to 45.4 billion won (US$39.5 million) in January to March. Last year, amid pandemic curbs, earnings fell 6 per cent from 2019 numbers.

Starbucks Korea, however, declined to comment on why the US coffee giant agreed to divest its stake in the East Asian country.

A Hong Kong-based spokesperson for Starbucks could not be immediately reached.

"Starbucks and E-Mart have had many conversations on how we can continue to grow the Starbucks brand in the market, which led to this decision," said T J Hyung, Executive Vice-President of E-Mart, which operates a nationwide network of over 160 hypermarkets, discount stores, and other specialty stores.

E-Mart, and its parent Shinsegae Group, have leveraged a pandemic-led disruption in the Asian e-commerce industry to buy up some businesses.

A Shinsegae spokesperson said Starbucks Coffee Korea will continue to be in a licensing agreement with Starbucks, as it has been when it was a joint venture between Starbucks and Shinsegae Group.

E-Mart said last month it would buy most of EBay's South Korean business for US$3 billion, while another affiliate of Shinsegae, SSG.COM, bought an online shopping mall for 265 billion won in April.

Source: Reuters/lk

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