Summary on Acquisition of Haitai Beverage LG Household & Health Care October 29, 2010
Acquisition of Haitai Beverage Co. ( HBC ) Summary and Strategic Rationale Summary LG H&H has signed a share purchase agreement on October 29, 2010 to acquire 100% (18,828,000 shares) of Haitai Beverage Co., Ltd. ( HBC ) shares in exchange for a nominal cash payment of 10,000 won. Net debt of HBC is estimated to be 123 bn won at the time of closing. Shareholder Number of Shares Owned Ownership Asahi Breweries, Ltd 10,919,480 shares 58.0% Hotel Lotte Co., Ltd 3,577,320 shares 19.0% MB Asia Foods Co., Ltd 3,519,100 shares 18.7% Mitsui & Co., Ltd 541,400 shares 2.9% Dentsu Incorporated 270,700 shares 1.4% Total 18,828,000 shares 100.0% Strategic Rationale Narrow the gap in sales and manufacturing infrastructure vs. number one player LG H&H has turned around the Coca-Cola Beverage ( CCB ) business to solidify its number two market position since acquiring CCB in October 2007. Sales increased by 50% from 2007 to 2010, and 160 bn won operating profit was generated during the 3 years from 2008 to 2010. Operating profit margin is approaching 10% in 2010, the highest in the domestic beverage industry. LG H&H will operate HBC within the Global Coca-Cola system. Through the acquisition of HBC, CCB will be able to enhance sales, manufacturing, and distribution infrastructure which will narrow the gap with the number one player. (Please refer to synergies #1 and #2.) This acquisition will enable CCB to strengthen its existing brands, and to accelerate the introduction of new brands from the Global Coca-Cola system. 1/2
Acquisition of Haitai Beverage Co. ( HBC ) Synergies 1. Strengthen sales force through expansion of sales infrastructure ure Gap in sales capability between CCB and number one player, Lotte Chilsung, will be significantly narrowed after the acquisition. Relative sales will improve from 55% to 79%. Relative sales coverage will improve from 43% to 76%. Relative cold drink equipment capacity will improve from 70% to 93%. Lotte Chilsung* CCB Vs. Lotte Chilsung CCB + HBC Vs. Lotte Chilsung 2009 Net Sales (bn won) 1,092.8 604.5 55% 864.6 79% Sales Organization (direct + indirect routes) Equipment (cold drink showcase + vending machines) * Excluding alcohol (Unit: bn won, number of sales office, number of equipment) 1,601 681 43% 1,210 76% 164,000 114,134 70% 152,034 93% 2. Increase manufacturing and distribution capacity by utilizing Cheonan facility HBC s Cheonan facility has twice the manufacturing capacity compared to CCB s Yeoju facility, which is 42 acres. By utilizing the Cheonan facility, manufacturing footprint and distribution efficiency in the Seoul metropolitan area will be significantly enhanced. 3. Gain another differentiated water source By obtaining the water source at Pyungchang Gangwon-do, to augment the capacity in Cherwon, Gangwon-do, where Diamond Water is bottled, product launches in the rapidly expanding bottled water category can be accelerated. HBC sells Pyungchang water, which has 7% market share in the bottled water category, and the Pyungchang facility has extraction capacity of 100,000 ton per year, which is about triple the capacity at the Diamond facility. 4. Accelerate introduction of cold-chain chain products by acquiring cold-chain chain distribution capability The addition of direct and wholesale cold-chain distribution capability will: (1) help expand coverage of Danone yogurt products to traditional channels (from current coverage capability only in modern channel), and (2) open the door for cold-chain Coca-Cola products, such as perishable fresh juice and beverages containing fresh dairy. 2/2
Attachment 1: Company Overview Overview Sales and Operating Loss Trend (Unit: bn won) Company Name: Haitai Beverage Co., Ltd Established: February 1973 Business: RTD Beverage (including juice) Manufacturing and Sales Employees: 884 (as of June 2010) Shareholders: Asahi Breweries (58.0%), Hotel Lotte (19.0%), MB Asia Foods (18.7%), Mitsui & Co (2.9%), Dentsu Incorporated (1.4%) Manufacturing: Cheonan facility (fruit juice/carbonated beverages), Pyungchang facility (bottled water) Sales Operating Loss 318.4 308.6-10.9-16.1 307.0 288.5 260.1-19.5-39.4-40.9 2005 2006 2007 2008 2009 Sales Breakdown by Product Category (Unit: %) Sales Breakdown by Channel (Unit: %) Others 24.4%* 100% Juice 18.5% Others 17.2% Discount Stores 11.0% Supermarket 12.6% Export 5.2% Children s Drinks 3.9% Coffee 7.7% Carbonated Beverage 10.2% Bottled Water 9.6% Lower Concentrate Juice 25.8% Exclusive Wholesalers 27.3% CVS 7.4% Wholesalers 19.3% * Others includes functional drinks and teas Based on 2009 Gross Sales * Others includes special sales, Korail, army, and airlines Based on 2009 Gross Sales
Attachment 2: Impact of Acquisition on LG H&H Net Profit Pre-acquisition Post-acquisition (Unit: bn won) 2010(E) 2011(E) 2012(E) 2013(E) 2014(E) 2015(E) Haitai Beverage Net Sales 264.3 257.7 269.1 281.2 294.1 307.7 Operating Profit (25.4) 0.0 10.0 18.6 21.4 23.7 Tax 0.0 0.0 0.0 0.0 0.0 0.0 Net Profit (25.4) 0.0 10.0 18.6 21.4 23.7 Synergies with Coca-Cola Beverage Expansion in distribution and coverage 0.0 2.5 5.0 5.0 5.0 7.5 Total Impact on LG H&H Net Profit (25.4) 2.5 15.0 23.6 26.4 31.2 Key assumptions 1. Net sales, operating profit, and expansion in distribution and coverage: Credit Suisse Securities and company estimates 2. Tax loss carry forward through 2015