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Lotte founder's mental capacity in dispute as succession battle heats up

The Lotte Castle residential buildings, built by Lotte Engineering and Construction, a subsidiary of Lotte Group, stands in Seoul, South Korea.
SeongJoon Cho | Bloomberg | Getty Images
The Lotte Castle residential buildings, built by Lotte Engineering and Construction, a subsidiary of Lotte Group, stands in Seoul, South Korea.

A bitter succession battle at South Korean-Japanese conglomerate Lotte Group escalated on Thursday with the founder's sons sparring over their father's mental capacity and who is most likely to gain control of a key holding company.

This week, the younger son of 92-year-old founder Shin Kyuk-ho gained the upper hand in controlling Japan-based Lotte Holdings, sacking his father as co-CEO after he flew in with the eldest son to dismiss the board.

But whether younger son Shin Dong-bin will be able to maintain his grip on Lotte Holdings is uncertain as his father has a large stake in the company and appears to have switched his allegiance to his older brother who was fired from the holding firm in January.

Seoul-based Lotte Group, run by Dong-bin, has maintained that this week's attempted board room coup was instigated by the elder brother and on Thursday went one step further saying the father had "difficulties making judgments".

That statement was made in response to an interview by elder brother Shin Dong-joo to the Nikkei business daily in which he said his father had no problems with management decisions and had switched sides after being convinced that the younger son had fed him "distorted information".

The founder and the eldest son could not be immediately reached for comment.

The sprawling conglomerate, with operations that span retail, confectionary, hotels and chemicals, had until last year been divided of sorts between the two brothers with the youngest running the South Korean operations and the eldest running the Japan businesses.

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The two sides also differ markedly in their descriptions of how a shareholder vote at Lotte Holdings might pan out.

Dong-joo told the Nikkei he planned to call for the dismissal of the Lotte Holdings board at an upcoming shareholder meeting and said his father controlled 33 percent of its voting rights through an asset management company and would be able to take that to two-thirds with the support of an employee association.

In contrast, Lotte Group said in a statement that the holding company's board would not have sided with the younger son if it had not been confident of commanding sufficient votes.

Lotte Holdings declined to comment on the Dong-Joo interview and said that the timing of a shareholder meeting was undecided.

The feud has sent shares of Lotte's core listed affiliates surging on speculation that the brothers will seek to boost their stakes. Retailer Lotte Shopping jumped 6 percent, its second straight day of strong gains.