4 Parties, Including Hapag-Lloyd, Join Acquisition Battle for HMM
Harim, Dongwon, and the LX Group have actively joined the acquisition battle for HMM. Hapag-Lloyd, the largest shipping and container transportation company in Germany, is also participating in the preliminary bidding.
According to the investment banking (IB) industry on Aug. 21, Korea Development Bank (KDB) and the selling agent, Samsung Securities, closed the preliminary bidding for HMM the same day. Four companies, including Harim, Dongwon, LX, and Hapag-Lloyd, participated in the preliminary bidding. If this sale process ultimately succeeds, one of these companies will emerge as the new owner of HMM.
Harim has partnered with the private equity fund (PEF) manager JKL to form a consortium and has entered the acquisition battle. Harim Group holds about 1.5 trillion won (US$1.12 billion) in cash and cash equivalents. The shortfall in funds will be raised through acquisition financing, and there are plans to liquidate the logistics center development site in the southern Yangjae neighborhood of Seoul to secure the necessary capital.
Dongwon is structuring a collaboration with Korea Investment Holdings. Korea Investment Holdings is led by Kim Nam-goo, the eldest son of Kim Jae-chul, founder and the honorary chairman of the Dongwon Group. Dongwon holds approximately 600 billion won in cash and cash equivalents.
LX, which has roughly 2.4 trillion won worth of cash and cash equivalents, the highest amount among the three, is reportedly exploring various options, including collaboration with financial investors (FIs) and acquisition financing.
In terms of total assets, Harim has 17 trillion won, SM 16 trillion won, LX 11 trillion won, and Dongwon 9 trillion won, all of which are smaller in company size compared to HMM with 24 trillion won in assets. In the industry, there are concerns that Harim, Dongwon, and LX Group might each face a significant burden in raising the estimated 6 trillion won in acquisition funds. Given the resistance to selling national carriers overseas, the likelihood of selling to Hapag-Lloyd is also seen as unlikely.
It is necessary to demonstrate a certain level of business growth potential to attract FIs, but the challenging business conditions in the shipping industry pose a problem. Also, acquisition financing comes with substantial interest burdens due to the ripple effects of global interest rate hikes. The annual acquisition financing rates being discussed by the candidates are reported to be in the mid-to-late 8 percent range.
The acquisition candidates are also concerned about KDB’s view of taking away the cash and cash equivalents accumulated in HMM as dividends. It is known that KDB is preparing agreements between the acquirer and shareholders to prevent significant dividends after the acquisition.
In certain circles there is speculation that KDB might consider halting the ongoing sale process. In the sale announcement, the bank mentioned, “The sale procedure is subject to cancellation or modification based on the seller’s circumstances, and potential investors cannot raise any objections to the transaction procedures.”
Observations suggest that some candidates who chose not to participate in this preliminary bid are increasingly considering the possibility of a failed auction and are contemplating “post-failure scenarios.” If the sale falls through, there is also the possibility of proceeding with a Stalking Horse approach, similar to the Daewoo Shipbuilding & Marine Engineering case, where a buyer is sought behind the scenes, negotiations are concluded, and a preferred negotiating party is selected before transitioning to a public auction.
Note: Article by Jung Min-hee (www.businesskorea.co.kr)