The HMM Acquisition Battle Begins... Is a Major Shift Coming in the Business World?

San-eun and Haejingong Announce Joint Sale of Management Rights
Assets Worth 25.9 Trillion Won... Major Deal in M&A Market
SM Group to Rank 13th in Business World if Acquired
Hyundai Motor Group's Legitimate Succession Justification
POSCO Group's Commitment to Shipping and Logistics
CJ, LX, and Others Also Mentioned as Acquisition Candidates

As the HMM acquisition battle officially begins, the HMM headquarters located in Park One Tower, Yeouido. Photo by Jo Yongjun jun21@

The curtain has risen on the sale process of HMM (formerly Hyundai Merchant Marine). It is expected that not only SM Group, which has expressed a strong intention to acquire, but also many large corporations that have internally explored acquisition possibilities will join the bidding war. As it is considered the biggest deal in this year’s mergers and acquisitions (M&A) market, a fierce game of brinkmanship is inevitable until the very end.

Korea Development Bank and Korea Ocean Business Corporation announced on the 20th the joint sale of HMM’s management rights and officially launched the sale procedure. They formed an advisory group with Samsung Securities and others on April 10 and concluded that it is appropriate to start selling HMM’s management rights within the year. The management rights sale process will be conducted through an open competitive bidding in accordance with the National Contract Act. The goal is to first select a preferred negotiation partner and then sign a stock purchase agreement within the year. HMM, the largest shipping company in Korea, had total assets of 25.9 trillion won as of the end of last year, ranking 19th in the Fair Trade Commission’s corporate group rankings. Acquiring it would instantly increase the scale of a company.

The leading candidate is SM Group, which has officially declared its participation in the acquisition. SM Group Chairman Woo Oh-hyun has even proposed a specific price of up to 4.5 trillion won, expressing a strong acquisition intention. SM Group, with assets of 16.5 trillion won (ranked 30th), would leap to 13th place in the business world rankings, surpassing CJ Group (40.7 trillion won), if it acquires HMM.

However, the shipping industry views SM Group’s valuation of HMM as too low. An industry insider said, "Chairman Woo is seen as making a strategic move to raise SM Group’s value," adding, "During the boom, HMM was valued at over 10 trillion won, so buying it for less than half that amount makes it hard to be optimistic."

The next candidates are Hyundai Motor Group, ranked 3rd in the business world, and POSCO Group, ranked 5th. For Hyundai Motor Group, acquiring HMM is not only a simple business move into the shipping industry but also symbolically regaining the lost territory of the former Hyundai. HMM’s former name was Hyundai Merchant Marine, which was one of the major affiliates of the old Hyundai Group. If Hyundai Motor acquires it, it can claim the legitimacy of inheriting the old Hyundai Group. Synergies with Hyundai Glovis, which operates bulk shipping, are also expected.

POSCO Group has long explored entry into shipping and logistics because it imports most of its raw materials from overseas. In 2003, it entered the logistics business by establishing Posco Flow in a joint venture with Japan’s Mitsui & Co. However, POSCO Holdings stated during its first-quarter earnings conference call that it is not considering acquiring HMM because it does not align with its mid- to long-term business direction.

HMM 16,000 TEU-class ultra-large container ship 'Nuriho'
[Photo by HMM]

Other candidates mentioned include CJ Group and LX Group (ranked 44th). Other shipping companies, including Janggeum Shipping, are expected not to actively participate in this acquisition battle. The atmosphere is that increasing market share would lead to more regulations, resulting in more disadvantages than advantages.

The key issue remains the price. The total shares for sale of HMM amount to 399 million 900 thousand shares, representing approximately 38.9% diluted ownership including perpetual bonds held by Korea Development Bank and Korea Ocean Business Corporation. Additionally, the remaining perpetual bonds worth 2.68 trillion won are expected to be converted stepwise depending on HMM’s exercise of redemption rights. The likely scenario is converting about 1 trillion won into shares and holding the rest. Industry estimates place the acquisition price roughly between a minimum of 4.5 trillion won and a maximum of 8 trillion won.