Merging Korea’s largest home shopping operation with the country’s largest media and entertainment business has a nice ring to it. Or so it seems, as CJ executives pitch a proposed merger between CJ O Shopping and CJ E&M as a timely combination that straddles IP and commerce across digital platforms. Our view is that real benefits and synergies will take time, possibly after another three to five years, as will much-vaunted global expansion. It is also another reminder of how public market appreciation of pure-play content creation and distribution companies is challenged, locally and globally. As a result, many players are seeking greater scale and value creation through mergers and other strategic combinations.
In time, this deal may enhance competitiveness by bringing together CJ Group’s overall media and commerce businesses, similar to Amazon and Alibaba. The transaction helps CJ develop real scale across ecommerce longer term, as it looks to transition from its traditional but profitable shopping business. Management have highlighted three benefits in particular:
- A stronger digital presence as the deal may help speed up integration of both companies’ digital platforms (20 mil. users combined). This should leverage big data and ad solutions for improved content/merchandise development and curation.
- More effective regional and global expansion with potential aggregation of overseas operations. CJ E&M is subscale outside Korea, developing local operations across Southeast Asia and North America in recent years while licensing popular content to streaming platforms worldwide, China included. CJ O Shopping, meanwhile, has some large local businesses in Asia through various partnerships. Management believe the new merged entity could deliver a 15% CAGR (from 2018) in total sales to W6.7 tril. (US$5.9 bil.) by 2021, with overseas sales accounting for 32% versus 18% this year.
- A better future than just shopping. While CJ O Shopping benefited greatly in 2017 with a big jump in T-commerce and mobile sales (boosting gross sales 18% Y/Y), Korea’s domestic home shopping market is saturated. Integration with CJ E&M could boost synergies and growth across a converged content and commerce platform after 2020.
CJ O Shopping also owns 54% of leading cable MSO CJ Hello while CJ E&M also has stakes in high-value production (Studio Dragon, 71%) and gaming (Netmarble, 22%) entities.
On 17 Jan., CJ O Shopping disclosed plans to merge with its media affiliate CJ E&M. The proposed merger ratio is 1:0.41 (i.e. existing shareholders in CJ E&M will receive 0.41 new shares in CJ O Shopping). Pending shareholder approval, the merger will be effective as of 1 Aug. 2018.
For full analysis with charts and tables, please contact Lavina Bhojwani, VP, Client Services, Media Partners Asia