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Photo courtesy of Yonhap News |
[Alpha Biz= Kim Jisun] Emart’s strategic investment in meat importer and processor OK Meat may face a turning point, as the South Korean retail giant is reportedly reconsidering whether to exercise its call option to increase its stake, due to the target company’s worsening financials.
According to a disclosure filed with the Financial Supervisory Service (FSS) on July 22, OK Meat reported a negative EBITDA of KRW 7.7 billion (approx. USD 5.5 million) for its 2024 fiscal year (April 1, 2024 – March 31, 2025), marking a reversal from the previous year’s brief return to profitability. This is the company's second year in the red in the past three years.
EBITDA—earnings before interest, taxes, depreciation, and amortization—is widely used to assess a company’s core operating cash flow. A negative EBITDA indicates the business is failing to generate positive cash from operations, casting doubt on its standalone viability.
Since Emart’s strategic investment in 2022, OK Meat has only turned a profit once. Ongoing external uncertainties—such as the fallout from Russia’s invasion of Ukraine—have led to persistently high cost structures. The company’s average cost ratio over the past three years has stood at a staggering 94.4%.
At the time of the investment, Emart entered into a shareholder agreement with IGIP No.3 LLC, which holds an 85% stake in OK Meat. The agreement granted Emart the right of first refusal on any share transfer and a call option to acquire up to 49% of the company’s equity.
However, given the sustained losses and negative EBITDA, Emart’s likelihood of exercising the call option is now seen as uncertain. A declining EBITDA undermines the valuation of OK Meat, and exercising the option at a pre-agreed price could result in a financial loss for Emart.
EBITDA is a key metric in enterprise valuation and is central to the EV/EBITDA multiple approach, which estimates a company’s worth based on its cash-generating capabilities. In sectors like food processing and retail, where tangible cash flows are highly scrutinized, a shrinking or negative EBITDA is a major red flag for investors and acquirers alike.
Industry watchers believe that, nearly three years into its investment, Emart is likely undergoing a detailed internal review of whether to proceed with the call option. While the exact terms of the option agreement have not been disclosed, the option is believed to be time-limited, implying that a decision may be imminent.
In response, an Emart spokesperson stated:
“We continue to maintain our strategic investment in OK Meat, which specializes in imported meat distribution and processing. The timing and decision regarding the exercise of the call option have not yet been determined and will be reviewed comprehensively based on market conditions and long-term strategic synergy.”
Alphabiz Reporter Kim Jisun(stockmk2020@alphabiz.co.kr)
