Chairmen's 'War of Money'... Is the HMM Acquisition Battle Heating Up?

LX, Harim, Dongwon, SM Group, Global SeAH, etc. Expected to Participate
Growing Interest in Business Synergy Effects and Industry Impact

Five groups including LX, Harim, Dongwon, SM Group, and Global Seara have participated so far in the acquisition battle for HMM, the largest shipping company in South Korea. Attention is focused on the financial status of each group participating in this large-scale merger and acquisition (M&A) deal worth about 5 trillion won, the business synergy effects after acquisition, and the impact on the industry. The competitive dynamics among group heads who are actively pursuing M&A to discover new businesses is also a key point to watch. The investment banking (IB) industry does not rule out the possibility of major conglomerates such as Hyundai Motor Group, POSCO, and CJ suddenly joining the HMM acquisition battle. An IB industry insider explained, "Since this is an industry with large cycles, a strong strategic investor (SI) needs to take the lead. Private equity funds can collaborate, but the structure is not suitable for them to lead this M&A."

Will SM Group Chairman Woo Oh-hyun Show M&A Prowess?

SM Group has shown a strong intention to acquire. SM Group has set a hopeful acquisition price of 4.5 trillion won. HMM’s largest shareholders are public institutions such as KDB Industrial Bank and Korea Ocean Business Corporation, with a market capitalization of about 8.5 trillion won. The acquirer needs to purchase about 40% of the total shares, approximately 3.5 trillion won. There is also a perpetual bond worth 1.68 trillion won on standby, so the total sale price is expected to be in the 4 to 5 trillion won range.

SM Group, which is actively pursuing the acquisition of HMM, is expected to be able to raise about 1.06 trillion won if it mobilizes funds from its affiliates. However, SM Group’s financial capacity is realistically insufficient to cover the sale price. Most of the funds are expected to be raised through borrowing. In terms of business synergy, SM Group’s acquisition of HMM is expected to cause a significant impact on the global shipping industry. Chairman Woo Oh-hyun of SM Group has been accumulating HMM shares over several years. SM Group holds a total of 6.56% of HMM shares, making it the third-largest shareholder after the Industrial Bank and Korea Ocean Business Corporation. Since SM Group’s shipping business focuses more on bulk carriers rather than container ships, acquiring HMM, the number one container shipping company in Korea and eighth in the world, will double its competitiveness.

SM Group’s shipping affiliates include SM Line, Daehan Shipping, Daehan Merchant Shipping, Changmyeong Shipping, and Daehan Shipping LNG. Among these, the key is the route expansion through the merger with SM Line. SM Line’s main routes currently pass through China, Japan, Thailand, Vietnam, and Malaysia. HMM’s main routes are to the Americas and Europe, so they complement each other.

LX Group Chairman Koo Bon-joon’s Integrated Logistics Vision

LX Group oversees the general trading company LX International and logistics agency LX Pantos. If it acquires HMM, it can integrate shipping into its land logistics and warehousing businesses to enable integrated logistics. It is analyzed that HMM will play a significant role in expanding overseas business together with LX Pantos, ranked sixth globally in logistics, and trading company LX International. In particular, LX Pantos is expected to secure price competitiveness by actively utilizing HMM’s container ships in its business operations.

However, LX Group’s own funding capacity is up to about 2 trillion won, and it has not presented a specific method for raising the M&A funds expected to be around 5 trillion won. The market speculates that LX Group will initially cover the shortfall through a rights offering. At LX International’s regular shareholders’ meeting in March, Chairman Koo increased the number of shares to be issued from 80 million to 160 million. Considering Chairman Koo’s recent moves to rise in the business ranking, it is analyzed that he may actively pursue new business discovery.

Dongwon Group Vice Chairman Kim Nam-jung, Testing the Capability of CVC Dongwon Technology Investment

Dongwon Group can also seek synergy effects with HMM through its land logistics company Dongwon Loex and port operator Dongwon Busan Container Terminal. If Dongwon Group acquires HMM, it will transform into a comprehensive logistics company connecting maritime transport with port operations (Dongwon Busan Container Terminal) and land logistics (Dongwon Loex).

Dongwon Group’s participation in the HMM acquisition battle is interpreted as part of its logistics business expansion efforts that have been underway since the mid-2010s. In 2016, Dongwon Group acquired Dongwon Loex (formerly Dongbu Express), establishing a nationwide logistics network and cold chain system. It also owns 100% of the shares in Dongwon Busan Container Terminal, which operates container terminal port business. Acquiring HMM would maximize logistics business synergy effects from land to sea.

However, Dongwon Group’s holding company Dongwon Industries has cash assets below 500 billion won, making the actual acquisition uncertain. If the synergy effects, price, and conditions meet Dongwon Group’s set guidelines, it is expected to actively proceed with the acquisition in partnership with financial investors (FI). The industry expects that Dongwon Group will leverage the capabilities and networks of Dongwon Technology Investment, its corporate venture capital (CVC). Vice Chairman Kim Nam-jung, who leads Dongwon Group, attempted to expand its scope earlier this year by participating in the acquisition battles for McDonald’s Korea and Boryung Biopharma centered on Dongwon Industries, which transitioned to a holding company, but was unsuccessful.

Harim Group Chairman Kim Hong-guk, M&A Rivalry with Former Partner

Harim Group is expected to participate in this acquisition battle as a consortium with private equity fund (PEF) operator JKL Partners. Harim and JKL Partners also cooperated during Harim’s acquisition of Pan Ocean in 2015. Pan Ocean, owned by Harim, mainly operates bulk carriers, while HMM focuses on container ships, so synergy effects between the two companies are anticipated. It is known that Harim Group is considering a plan where it acquires the major shares and JKL Partners acquires minority shares using blind funds and others. Harim Holdings had about 1.5 trillion won in cash as of the end of the first quarter. JKL Partners has collaborated with Harim on major investments. In 2012, when Harim sold NS Mart of NS Home Shopping to E-Mart, JKL Partners supported the deal. They also participated as joint acquirers in the 2015 Pan Ocean investment. After successfully acquiring, JKL Partners recovered funds amounting to 2.76 times the principal. If Chairman Kim Hong-guk of Harim Group actively joins this M&A, the rivalry with former partner Chairman Woo Oh-hyun of SM Group will be a point of interest. Chairman Woo worked with Chairman Kim in the poultry business in the 1970s but exited the business in 1978 to enter construction.

Global Seara Group Chairman Kim Woong-gi’s Challenge as a Major Player in the M&A Market

Global Seara Group, which entered the ranks of large business groups by acquiring Ssangyong Construction and surpassing 5 trillion won in total assets, is also considering acquiring HMM. Global Seara Group is in talks with major private equity fund operators to raise funds and has mentioned the possibility of cooperation with IMM Private Equity (PE). IMM PE sold Taelim Packaging to Seara Trading in 2019 for 700 billion won. Chairman Kim Woong-gi of Global Seara Group has emerged as a major player in the market by actively conducting M&A to discover new businesses within the group in recent years. In 2018, it acquired the plant business division of STX Heavy Industries (now Seara STX Entech), marking its full-scale entry into the plant and construction industries. Following acquisitions of Taelim Paper and Taelim Packaging, the top corrugated box manufacturers in Korea, it acquired Valmax Technology, a specialized ship fuel supply system company, and Ssangyong Construction. However, the synergy effects between HMM and existing affiliates and financial capacity are relatively weaker compared to other competing groups. As of the end of 2022, Global Seara’s holding company Global Seara had only 253.4 billion won in cash.

Meanwhile, HMM has been on the market for the first time in seven years since 2016. Formerly Hyundai Merchant Marine, HMM received 6.8 trillion won in public funds at the end of 2013 due to liquidity crisis and was under the management of the Industrial Bank. Samsung Securities, the sale agent, announced the sale of HMM on the 20th of last month. Preliminary bidding is planned to be held until the 21st of this month. However, an IB industry insider said, "There seems to be a lot of concern between the seller, who wants to recover public funds as soon as possible due to the shipping industry downturn, and the buyer, who needs to structure the acquisition considering deal size and remaining perpetual bonds."