Lotte Group Chairman Shin Dong-bin, fifth from left, poses with the group's executives during a ceremony to celebrate the merger of Lotte Confectionery and Lotte Foods at Lotte Hotel World in Seoul, July 5. Courtesy of Lotte Confectionery

By Park Jae-hyuk

Domestic conglomerates have been aggressively merging their subsidiaries recently in attempts to cope with the looming economic downturn through economies of scale and streamlined operations, according to industry officials, Monday.

Until last year, most conglomerates tended to split off their promising subsidiaries to attract additional investments, despite strong opposition from minority shareholders.

Rising interest rates and growing uncertainties in the business environment, however, have prompted Lotte, Hanwha, POSCO, KT and various other companies to change the direction of their management.

Earlier this month, Lotte Confectionery acquired Lotte Foods, appointing Lotte Group Chairman Shin Dong-bin and Lotte Confectionery CEO Lee Young-goo as co-CEOs. The food firm said it will maximize management efficiency, expanding its overseas presence by sharing both companies' sales networks.

"Lotte Confectionery will be able to improve its financial stability through the merger with Lotte Foods, which had a relatively better financial structure," Korea Ratings researcher Eom Jung-won said.

Ottogi also decided this month to merge Ottogi Ramyon Corp. and Ottogi Logistics Service Holdings by October to streamline its corporate structure. It expects the merger to enable a more efficient supply chain management.

"The merger is intended to enhance our competitiveness and rationalize our management," Ottogi said.

Hanwha Group headquarters in Seoul / Courtesy of Hanwha Group

Hanwha Group is considering merging Hanwha Aerospace, Hanwha Defense and Hanwha Corp.'s defense division to enhance corporate value. The group is also said to be considering merging Hanwha Corp. and its wholly-owned subsidiary, Hanwha E&C.

POSCO Group is reportedly pushing ahead with a merger of POSCO International and POSCO Energy to streamline the group's liquefied natural gas (LNG) business. The conglomerate is expected to make its final decision on the merger at a board meeting next month and obtain approval from shareholders in November.

Although POSCO International said in a regulatory filing that nothing has been decided yet, the company did not rule out the possibility of the merger, saying that it is considering various measures to create synergy among the group's affiliates.

KT, the Korean telecommunications company, is also said to be considering merging its two media subsidiaries, skyTV and Media Genie.

Industry officials expect domestic companies to continue to pursue restructuring as it has been difficult for them to attract investments from private equity firms or through initial public offerings.

However, some companies are still spinning off their subsidiaries while having founding family members maintain management control. A spinoff is the formation of an independent company via the sale or distribution of new shares of an existing business or division of a parent company.

Kolon Group, for example, announced last month that it decided to spin off Kolon Global's imported car dealership business from its construction and trading businesses by establishing Kolon Mobility Group, which will be led by Kolon Global Vice President Lee Kyu-ho, the oldest son of Honorary Chairman Lee Woong-yeul and the great-grandson of founder Lee Won-man.