Affinity sells stake in S Korea’s LG Household

Affinity Equity Partners has agreed to sell its controlling stake in South Korea’s third-largest cosmetics brand to LG Household in a deal totalling Won420bn ($364m), securing a healthy return for the Asian-focused private equity firm.

Affinity is expected to reap three to four times its investment from the sale of TheFaceShop after reportedly having paid about Won80bn for the South Korean company in 2005, well before asset prices started to take off in 2007.

Affinity has a strong record in both entering and selling investments in South Korea’s retail sector. The buy-out group sold consumer electronics retailer Himart, for $2.1bn in 2007, more than doubling its investment just two years before. Earlier this year, it bought a 50 per cent stake in Oriental Brewery from Kohlberg Kravis Roberts for $400m.

Affinity tried to sellTheFaceShop to Carlyle last year, but the talks stalled.

Yet, analysts said a 40 per cent rise in the benchmark stock market so far this year meant companies were now better placed to sell their investments in Asia’s fifth-largest economy.

There are expectations that Lone Star, the US private equity fund, could try to resume the sale process for Korea Exchange Bank next year and Korean banks plan to hold another auction this month to sell Hynix Semiconductor.

LG Household, South Korea’s second-ranked cosmetics company, said yesterday it would buy a 70 per cent stake from an affiliate of Affinity and a 19.8 per cent stake from Jung Woon-ho, the founder of TheFaceShop.

Investment bankers said acquiring TheFaceShop would help LG Household broaden its customer base by targeting young customers more aggressively and expanding abroad.

They said LG would also be able to take advantage of TheFaceShop’s strengthin the low-end segmentand its 160 outlets overseas.

LG said it hoped the acquisition would help it compete better with market leader AmorePacific in the country’s competitive cosmetics market.

TheFaceShop, with about 700 stores nationwide, reported a Won33.5bn profit last year on Won235bn of sales. It has a 5 per cent market share in Korea, followed by LG Household’s 12-13 per cent, according to Credit Suisse.

TheFaceShop has outsourced its research and development, production and distribution.

The deal is expected to be completed at the end of January.

Goldman Sachs advised LG Household.

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