Chicken Restaurant Chairman Surprised After Trying to Hatch Pears Instead of Eggs [Business & Issues]

⑨ Harim Failed to Acquire HMM

Chairman Kim Hong-guk, who started with 10 chicks and built Harim, South Korea's number one chicken company, tasted the bitterness of failure after setting his sights on ships instead of chickens. Given Harim's financial capacity, the attempt was unlikely from the start, leading to concerns described as the 'winner's curse' and 'a shrimp trying to swallow a whale.' Container shipping company HMM, which almost welcomed the chicken company chairman after Harim's failed acquisition, celebrated. Harim lost trust not only in the corporate mergers and acquisitions (M&A) market but also in the stock market.

Built the No.1 Chicken Company Barehanded... But Failed to Dominate Logistics

Chairman Kim is a representative self-made entrepreneur in Korea. His business began in the 4th grade of elementary school when he received 10 chicks from his grandmother and raised and sold them. He raised seed money and entered the broiler business by establishing Hwangdeung Farm in Iksan, Jeonbuk in 1978, then expanded into livestock, processing, and distribution by founding Harim Foods in 1986 and Harim in 1990. As of last year, his assets soared to 17 trillion won, ranking 27th in the business world.

Chairman Kim wanted a global group that could completely control the food value chain from raw material procurement to sales. Rather than being known as Korea's top livestock meat specialist, he aspired to wear the crown as the global number one dominating both food and logistics. This is why the business expanded into grain (feed raw materials), transportation, breeding, meat processing, distribution, and services.

In 2015, Harim entered the global grain distribution business by acquiring Pan Ocean, then Korea's largest bulk shipping company, successfully entering the top tier of the food chain. Since most feed raw materials are imported, acquiring Pan Ocean, which owned bulk carriers transporting grain, helped reduce transportation costs and stabilize distribution networks. This made acquiring HMM even more necessary. Acquiring HMM, which operates container ships, would have been a golden opportunity to expand the business beyond grain into the entire logistics industry.

How Dare You Overreach... Chairman Kim’s Failure Shows Harsh Reality

After attempting to acquire HMM following Pan Ocean, aiming to enter comprehensive logistics, the result was failure. Harim lacked sufficient funds to expand the business. The HMM Harim sought to acquire had assets of 25.8 trillion won, larger than Harim’s 17 trillion won. Harim struggled to raise the 6.4 trillion won acquisition price, and although it could have received help from private equity fund JKL, it failed to secure conditions to recover the investment, leading to the collapse of final negotiations.

Chairman Kim also underestimated the harsh domestic reality where privatization of national key industries is not easily accepted. Moreover, the key to M&A success lay with the notoriously demanding Korea Development Bank.

HMM fell under creditor management, including Korea Development Bank and Korea Ocean Business Corporation, due to a liquidity crisis in 2016. From the creditors’ perspective, the best scenario was to sell the well-prepared HMM during the shipping industry's peak season to a suitable buyer and recover funds. However, since shipping is a national key industry, mishandling the sale of a company rescued with public funds could lead to a loss of national shipping competitiveness, making it difficult to avoid responsibility. Harim was neither a company with high understanding of the shipping industry nor one with alternatives to lead the company. Therefore, the creditors judged that some level of management oversight was necessary even after HMM’s sale.

HMM and Pan Ocean 'Celebrate'... Harim Loses Trust

With Harim’s failed acquisition of HMM, Korea Development Bank and Korea Ocean Business Corporation continue to hold 57.9% of HMM’s shares. Shipping companies HMM and Pan Ocean breathed a sigh of relief.

The HMM labor union strongly opposed the M&A, citing Harim’s insufficient acquisition funding plans and lack of financial stability. After the final negotiation collapse, the union welcomed the outcome as "changing the fate of Korea’s shipping industry" and emphasized it as a process of realizing the importance of establishing privatization governance plans for Korea’s representative national shipping company.

Pan Ocean, controlled by Harim, also rejoiced. It was relieved from the burden of having to raise 2 to 3 trillion won through a rights offering to support the acquisition funds. Pan Ocean’s stock price surged 21% on the 7th, the day the final negotiation collapse was announced, and rose an additional 3.58% on the 8th. Meanwhile, Harim’s stock price fell more than 16% due to disappointment over the failed acquisition.