Tue Jul 3, 2012 7:51am EDT
* MBK request to extend exclusive period rejected
* MBK also bidding on S.Korea's Woongjing Coway -source
* MBK wanted more time after examining recent data -source
* Move opens door for Lotte, preferred by market
* Hi-Mart stock climbs 8 pct
* Sellers turn to other bidders for stake sale stake -source (Adds details on Woongjin Coway bidding)
By Joyce Lee and Stephen Aldred
SEOUL/HONG KONG, July 3 (Reuters) - Private equity fund MBK Partners has walked away from the auction of a majority stake in Hi-mart Co, South Korea's biggest electronics retailer, after it found a worse than expected deterioration in the business on entering exclusive talks, a source with knowledge of the matter told Reuters.
Earlier on Tuesday Hi-Mart said that shareholders had rejected MBK's request to extend its exclusive negotiating rights to buy the stake valued at $700 million, re-opening the door to rival bidder Lotte Shopping Co. MBK, run by former Carlyle Asia Partners president Michael Kim and one of South Korea's better known funds, had been selected just last week to buy a 65.3 percent stake in Hi-mart, but requested more time after it saw very recent performance data, a second source familiar with the matter said.
The sellers, Hi-Mart's largest shareholder Eugene Corp and two other shareholders are now expected to turn to other bidders, said a third source with direct knowledge of the matter. Founded in 1987, Hi-mart operates some 290 stores, controlling 35 percent of the market, ahead of Samsung Digital Plaza. While MBK might have outbid Lotte, the nation's biggest department store has been regarded by the market as a better fit for Hi-Mart and the news of MBK's loss of exclusivity sent Hi-Mart shares surging 8 percent.
The MBK offer was "in the 70s" said the first source, referring to a value of more than 70,000 won a share, adding the bid was "way below" the around 80,000 won a share quoted in local media. The stock closed at 52,000 won on Tuesday.
MBK declined to comment.
Shares in Hi-Mart lost roughly a fifth of their value after bidding closed on June 20, hit by disappointment that Lotte was not the preferred bidder and poor forecast for second-quarter earnings.
A Lotte spokesman said the company did not know if MBK had withdrawn from the sale or whether the sale was now open to other bidders, adding that it will consider the issue once it knows. Lotte Shopping is part of the Lotte Group which has in recent years pursued an aggressive acquisitions strategy, snapping up targets across Asia, including Chinese supermarket operator Times Ltd in 2009.M
Hi-mart reported a 43 percent tumble in first-quarter operating profits with analysts citing weak consumer demand for home appliances. They added that Hi-mart was particularly hard hit, with the leadership suffering after its former CEO was charged in a $228 million embezzlement case.
SNAGS
Meanwhile MBK has turned its attentions to bidding for a stake in Korea water purifier maker Woongjin Coway Co Ltd , where it is competing with local firms GS Retail Co Ltd and Lotte Group again, the first source added.
North Asia-focused MBK also plans to raise a new $1.5 billion fund, according to sources with knowledge of the matter. Private equity firms face a tough fundraising climate, and MBK has hit some recent snags as it actively pursues acquisitions and sales of its assets.
Last year the firm, which has $3.8 billion in funds under management, tried unsuccessfully to sell its stake in Japanese software developer Yayoi, one of a number of private equity sales that stalled as buyers turned bearish on Europe's debt woes.
The firm also faces an anxious wait on an agreed $2.4 billion sale of Taiwan cable TV operator China Network Systems, as the buyer may have to pull the deal because of delays getting regulatory approvals. (Additional reporting by Denny Thomas; Editing by Edwina Gibbs and Greg Mahlich)
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