The ongoing takeover battle for HMM, which had been a three-way competition between Harim Group, LX Group, and Dongwon Group, could face another twist. There’s speculation that POSCO might enter the acquisition fray, intensifying the competition among potential acquirers. Amid this, the prospective acquiring companies are actively securing the necessary funds for the acquisition and preparing for the main bid next month through the mobilization of task forces.
According to industry sources on Oct. 19, Pan Ocean has decided to sell its shares in Hanjin KAL during a board meeting held on Oct. 16. Pan Ocean plans to dispose of 3,903,973 shares of Hanjin KAL stock for 162.8 billion won (US$119.79 million). Pan Ocean has stated that the purpose of this share disposal is to secure investment returns.
However, the prevailing view is that it is primarily intended as the preparation to secure the necessary funds for Harim Group’s takeover of HMM. As of the first half of this year, Harim Group’s cash assets amount to approximately 1.5 trillion won (US$1.1 billion), which falls short of half of the expected acquisition amount for HMM. Therefore, the company needs to raise more funds to secure the acquisition.
It is anticipated that Dongwon Group may also consider launching initial public offerings (IPOs) for three unlisted affiliates – StarKist, Dongwon LOEX, and Dongwon Home Food. Additionally, there is a high likelihood that the group might explore raising acquisition funds through the sale of real estate assets, such as the sale of the Dongwon F&B Building in the Seocho district of Seoul.
Dongwon Group’s cash assets for the first half of this year amount to 600 billion won (US$441.57 million), which is considered the least favorable among potential acquirers in the HMM takeover. However, given the strong determination to acquire displayed by figures like Honorary Chairman Kim Jae-Cheol of Dongwon Group, it is expected that it will go all out in its efforts to secure acquisition funds.
LX Group has also initiated efforts for the HMM takeover. It has been reported that LX Group recently established a task force involving employees from subsidiary companies such as LX International and LX Pantos to discuss fundraising methods and other related matters.
LX Group holds cash assets of 2.5 trillion won (US$1.84 billion), putting it in a favorable position in the condensed three-way battle for the HMM takeover. Activating the task force one month before the main bidding reflects the management’s proactive determination.
Nevertheless, the HMM takeover does not rule out the possibility of an unsuccessful outcome, particularly when considering the uncertainty surrounding the perpetual bonds. Korea Development Bank (KDB) and the Korea Ocean Business Corporation (KOBC) carry 1.68 trillion won (US$1.24 billion) in perpetual bonds, which were not included in this takeover. It is widely believed in the industry that the KDB and the KOBC may opt for a stock conversion to avoid embezzlement controversy as it could yield more than three times the profit.
As the stock conversion of the perpetual bonds gains momentum, the company that acquires HMM will need to secure additional cash to purchase the perpetual bonds. However, given that this amount could reach up to 5 trillion won (US$3.68 billion), it is a prevailing analysis that candidates with insufficient cash assets may have to abandon the acquisition.
If the current HMM sale ends without a successful bid, there is an expectation that POSCO might enter the acquisition battle next year. A significant number of POSCO board members have their terms ending in March next year, making it highly likely that the group will participate in the HMM bid.
In the event of a single failure in the HMM sale, Hyundai Motor is also seen as a strong contender to enter the acquisition battle. If Hyundai Glovis acquires HMM, it would have the potential to carry out various business synergies, including business expansion, succession of the management rights of Chairman Chung Eui-sun of Hyundai Motor, as well as restructuring the governance structure. This makes Hyundai Motor’s participation in the acquisition a possibility, taking into account the potential for business synergy.
An industry insider said, “Given that KDB and KOBC have no choice but to convert the perpetual bonds into shares, it is difficult to guarantee that HMM will be sold this year. There are many variables, and the sale may be delayed for a significant period.”