CJ CheilJedang puts bio business on market for $4 bn

CJ CheilJedang Corp., South Korea’s largest food company, is seeking to sell its bio business for about 6 trillion won ($4.3 billion) in what could be the country’s largest M&A deal this year, according to people familiar with the matter on Monday.

Unloading the profit-making business falls in line with its parent CJ Group’s restructuring efforts to revive sagging sales at its two growth pillars: food and entertainment.

CJ CheilJedang is reaching out to potential buyers of the bio business division, which produces amino acids used in microbial food and feed ingredients, sources told Market Insight, the capital market news outlet of The Korea Economic Daily.

It will receive bids as early as December. Morgan Stanley is handling the sale.

The bio business is one of CJ CheilJedang’s two growth engines alongside the food business. It is the No. 1 market player in lysine, a basic amino acid used in animal feed.

The division raked in about 4 trillion won in revenue annually over the past three years, with earnings before interest, tax, depreciation and amortization (EBITDA) of 500 billion won to 900 billion won.

CJ CheilJedang has solidified its position in the feed amino acid market, where its German and Japanese peers have ceded to their lower-priced Chinese rivals.

Thanks to its production bases spanning the US, China, Brazil and Southeast Asia, its bio business enjoyed explosive sales growth amid the global supply chain disruptions of the COVID-19 pandemic period.

In 2021, the division surpassed the food business in terms of sales and profits. It accounts for 20% to 30% of CJ CheilJedang’s revenue and operating profits.

In 2024, its sales are forecast to exceed 4 billion won, with EBITDA of about 700 billion won. The estimated price for the bio division amounts to about 10 times its EBITDA.

CJ Group is now questioning whether the feed amino acid business will be able to maintain its growth momentum, the sources said.

It has decided to commit more resources to the food business. Sources said it will use the proceeds from the bio business sale to buy a company as part of its pursuit of global expansion.

Its 2.1-trillion-won purchase in 2018 of Schwan’s Company, the No. 2 frozen foods maker in the US, propelled CJ’s frozen food sales under its flagship brand Bibigo and pre-cooked rice Hetbahn sharply higher in the US.

The deal marked CJ Group’s largest-ever acquisition.

By 2023, CJ’s food sales in the US had reached 4.4 trillion won — more than 10 times the level at the time of the Schwan’s Company purchase.

But its food division overall posted a 31% drop on-year to 161.3 billion won in operating profit in the third quarter, weighed down by lackluster domestic sales.

ENTERTAINMENT UNITS

The group’s entertainment units are also floundering.

Fifth Season, formerly Endeavor Content, racked up an 85.9 billion won net loss over the January-September 2024 period. It acquired the Hollywood studio for $775.3 million in 2022.

CJ ENM logged a 15.8 billion won operating loss in the third quarter, hit by the poor performance of over-the-top player TVing. Its drama studio Studio Dragon suffered declining profits this year.

CJ OLIVEYOUNG 

CJ OliveYoung, the country’s largest beauty products chain, made up for the parent group's losses.

Its revenue shot up 23.4% and its net profit soared 21.6% in the third quarter from a year prior. But the unit accounts for only about 10% of the group’s revenue.

RESTRUCTURING EFFORTS

To prop up its food and entertainment businesses, CJ Group has been unloading domestic sales-focused businesses – even the profitable ones. 

In 2018, it sold CJ Hellovision, a cable TV operator, to LG Group and CJ Healthcare, a health functional food maker, to Komar Korea Co. The two companies had been generating steady earnings.

CJ CheilJedang is in the process of selling CJ Feed&Care Co., its wholly owned animal feed and livestock company, for about 1 trillion won.

In 2023, it sold two overseas units: Brazilian soybean crusher CJ Selecta S.A. for an estimated 480.5 billion won; and Sichuan Jixiangju Food Co. for about 300 billion won.

Write to Jun-Ho Cha at chacha@hankyung.com
 

Yeonhee Kim edited this article.