Shaking up Dynamics
Hapag-Lloyd, based in Germany and the fifth-largest shipping company in the world, is currently considering participating in the acquisition bid for Hyundai Merchant Marine (HMM), the largest shipping company in South Korea, which is currently offering a sale.
According to investment banking (IB) industry sources on Aug. 17, Hapag-Lloyd has recently received an Information Memorandum (IM) from Samsung Securities, the lead manager for the sale of HMM, and is weighing the possibility of participating in the acquisition bid. Hapag-Lloyd has chosen Goldman Sachs as its advisory firm and is considering the appropriate acquisition price and potential business synergies. If Hapag-Lloyd acquires HMM, it believes it can expand its presence in the Asian region within the container business and rise to be among the top three in the world.
Hapag-Lloyd has been a member of the “The Alliance,” an alliance of shipping companies, since 2020 along with HMM. In particular, Hapag-Lloyd has recently been strengthening its presence on the routes between Asia and the Mediterranean, as well as the trans-Pacific routes between Asia and the eastern coast of the United States, by adding ships. This is giving them more influence on the routes between Asia and Europe as well as the Americas.
In the industry, there is a keen interest in whether overseas companies can acquire HMM, which is essentially the only remaining national flag carrier in the country. Analysis suggests that the fact that overseas companies have stronger financial capabilities compared to domestic mid-sized groups, such as Harim, Dongwon, and LX, which have entered the acquisition bid, is a factor shaking up the dynamics of the acquisition bid.
An official from the industry said, “Legally, there is no way to prevent foreign companies from investing in domestic companies. However, there are doubts regarding whether it would be reasonable for foreign companies to acquire a national flag carrier considering domestic sentiment.” Another official said, “We need to consider potential scenarios that could unfold. In times of war, domestic shipping companies have a role to fulfill. However, there are concerns that a company with adequate financial strength, as emphasized by the selling side, might be given priority in the acquisition process.”
The subject of this sale is the complete stake in HMM held by the Korea Development Bank (KDB) and the Korea Ocean Business Corporation (KOBC). KDB holds a 20.69 percent stake in HMM, while KOBC holds a 19.96 percent stake. In addition, both parties have included 1 trillion won (US$746.55 million) worth of HMM’s 2.7 trillion won scale of convertible bonds and bond with warrants in the sale. The estimated sale price in the industry, including a management premium, is around 4 trillion won. As a result, the total transaction size is estimated to reach 5 trillion won.
In the investment banking industry, all eyes are on the preliminary bid results for the HMM acquisition, which will be finalized through Samsung Securities on the Aug. 21. SM Group, which was the first to openly express interest in the acquisition, is rumored to be at risk of dropping out of the acquisition process, while Harim, Dongwon, and LX Group are reportedly deliberating on aspects like pricing until the final moments. Notably, these companies are also showing interest in the possibility of dividends from HMM’s nearly 15 trillion won in cash reserves. However, it is highly likely that KDB will impose restrictions on agreements between shareholders during the sale process, potentially affecting possibilities such as dividend distribution.