SM Group to buy HMM but not for over $3.5 bn: SM Chair Woo

SM Group has enough financial ammunition to buy the country’s No. 1 container shipping line HMM Co. but would not join the bid for the latter’s controlling stake if its price tag is more than 4.5 trillion won ($3.5 billion), said the chairman of South Korea’s 30th-largest conglomerate.

“[SM Group] will immediately jump into the race for HMM once its sale is officially announced,” SM Group Chairman Woo Oh-hyun said during an interview with The Korea Economic Daily on Wednesday, confirming recent market speculation about its attempt to take over the bigger rival.

“We have raised about 4.5 trillion won, including cash, cashable assets of affiliates and loans from banks.”

SM Group, the parent of HMM’s smaller rival SM Line Corp., has already launched a special team to prepare for its possible acquisition of HMM, Woo said.

“We believe a reasonable price for HMM is about 4 trillion won. We can even offer up to 4.5 trillion won but if the price goes above that level by even 1 won, we will give it up,” the chairman said.

LONG-TERM TAKEOVER PLAN

SM Group is now HMM's third-largest stakeholder, with a total stake of 6.56%, after the state-run Korea Development Bank (KDB) and state-controlled ship finance institution Korea Ocean Business Corp. (KOBC), with 20.98% and 19.96% stakes, respectively.

The group recently upped its holding in HMM from the previous 5.52% through SM Line and its entities, according to a regulatory filing by HMM on July 7, which triggered speculation that SM Group's declaration of its intent to take over HMM was imminent.

SM’s stake in HMM is jointly owned by Woo, his son Woo Ki-won, SM Line and other SM affiliates such as Korea Shipping Corp., SM Hi-Plus, Woobang Construction, TK Chemical Corp. and Korea Line Corp.

In particular, Ki-won, the group's de facto heir and its vice president in charge of the shipping business, has been steadily purchasing HMM shares in the market.

“We have amassed HMM shares in consideration of a possible takeover of HMM,” said Chairman Woo.

“Considering my age of 72, I have decided to buy HMM as my last mission — to reinvigorate our nation’s shipping industry by making us Asia’s No.1 shipping company.”

In March, KDB, the largest creditor of HMM, and KOBC embarked on a process to privatize the country’s No.1 sea carrier by selling a 40.94% controlling stake.

HMM, formerly known as Hyundai Merchant Marine, was placed under KDB in 2016 after it received 6.8 trillion won in bailout funds from the state-run bank to cover its heavy losses stemming from the prolonged shipping industry downturn.   

Along with SM Line, Hyundai Motor Group, LX Group and Samsung SDS Co. were touted as potential bidders, according to industry sources.

WITHDRAWAL FROM THE SHIPPING INDUSTRY

But a bumpy road is expected for its sale not only because of the recent downturn in the shipping industry after the pandemic-driven boom but also its perpetual convertible bonds, which make up some 30% of its stake with a value of 2.7 trillion won.

HMM issued more than 3 trillion won in CBs and bonds with warrants (BW) in 2017 to raise operating funds, and KDB and KOBC jointly assumed most of them.

If they are converted into shares, KDB and KOBC’s combined stake in HMM is expected to jump to 74%.

“If KDB converts (HMM) CBs into shares, SM Group will not join the (HMM) bid,” said Woo, warning that the sale would fall through because other candidates share SM’s concerns about CB conversion.

He continued that if KDB converts 1 trillion won worth of CBs into shares, it would inflate HMM’s market cap by 4 trillion won, which would elevate HMM’s price tag to 8.5 trillion won.

“No one would want to buy HMM with that price tag,” Woo said, recommending that KDB cash out with the principal and some interest without CB conversion to protect other minority shareholders.

“If SM Group gives up HMM, we would even consider selling off SM Line,” said Woo.

SM Group took over the US-Asia route and other assets of now-defunct Hanjin Shipping Co. for 37 billion won in late 2016.

The group rebranded Hanjin as SM Line Corp. in 2018, and the mid-sized shipping liner finally returned to the black during the pandemic-led shipping boom of 2021 after years of losses.

ECONOMIES OF SCALE & SYNERGY

SM Group has been eyeing HMM because it plans to groom its shipping business into Asia’s largest shipping company by merging HMM and SM Line, said Woo.

“Their union would allow them to achieve economies of scale and create greater synergy,” added Woo.  

The chairman was confident that his attempt to buy HMM would be another success after he triumphantly turned around several ailing companies that he'd previously taken over.

“None of the previous M&As was a failure. I trusted my gut again when deciding to buy HMM,” said Woo.  

“The shipping industry is very cyclical, and its boom cycle ended last year, we think. The new owner of HMM should be one that can stay long and firm. We will run HMM without debt if we have it,” added SM Group chairman.

SM Group Chairman Woo is widely known for his Midas touch.

SM Group, formerly the Samla Midas Group, acquired Korea Line Corp. under court receivership in 2013 under Woo’s tutelage. In 2016, it purchased bulk carrier Samsun Logix Corp., which is now Korea Shipping Corp.

The chairman has also taken over non-shipping businesses such as Namsun Aluminum Co., battery maker Bexel Co. and DongAh Construction Co. All of them were turned around under his control.

Following a slew of M&As, SM Group has risen to become Korea’s 30th-largest conglomerate.

“Some compare us to a shrimp that dares to swallow a whale, but that is impossible. SM Group is already a whale that is strong enough and big enough to take over other whales,” said Woo.

Write to Jae-Fu Kim and Hyung-Kyu Kim at hu@hankyung.com
Sookyung Seo edited this article.