Korea's KDB likely to tap top bidder for HMM in November

Competition to acquire HMM Co., the top container line in South Korea, is intensifying as the bidders are offering almost the same prices for the deal. One of the potential buyers, Korea’s Dongwon Loex and Harim Co., is likely to be picked as a preferred bidder as early as next week. 

Local brokerage Samsung Securities Co. held a bid to sell a 57.9% stake, or 398.8 million shares, in HMM on Thursday. The controlling stake is comprised of 29.2% held by the state-run Korea Development Bank (KDB) and 28.7% owned by the state-owned ship finance institution Korea Ocean Business Corp. (KOBC).

Both bidders offered prices of around 6.4 trillion won ($4.9 billion) for the acquisition. Harim’s offer is slightly higher than Dongwon’s, sources familiar with the situation said on Nov. 23.

The sellers will conduct a qualitative evaluation of the bidders, such as their financing strategies and post-M&A plans. KDB could select a preferred bidder by the end of November and sign a stock purchase agreement by the end of this year, sources said.

FINANCING SCHEMES

KDB has set the sale price in the low 6 trillion won range. The largest shareholder of HMM included little control premium in the price to prevent a voided bid, sources said.

The bidder’s equity ratio will be a key factor in the evaluation, KDB Chairman Kang Seok-hoon said during Korea's parliamentary audit on Oct. 24.

The sellers might prefer Dongwon’s financing structure to Harim’s, market insiders say.

To meet its “high equity ratio” standard, the seafood and logistics conglomerate is planning to minimize acquisition financing to 1.5 trillion won, without funding from financial investors.

To highlight the potential synergy in the shipping businesses, Dongwon Group changed the bidder from seafood firm Dongwon Industries to logistics arm Dongwon Loex around 10 days before the tender.

The group will also fund the acquisition by issuing its affiliates' bonds. The group's Vice Chairman Kim Nam-jung will visit the US to speed up the bond issuance of Starkist, a global leading canned tuna producer.

Harim, a leading poultry processing firm, has set up a plan to finance up to 6.5 trillion won, including 750 billion won from Seoul-based private equity firm JKL Partners.

The poultry company will also sell its shipping subsidiary Pan Ocean Co.’s 500 billion won perpetual bonds to construction conglomerate Hoban Group, according to sources.

POST-ACQUISITION PLAN

Dongwon Group founder Kim Jae-chul has shown a strong will for the acquisition and expects synergy from HMM and its port facilities. The group runs a port in Korea’s largest port city Busan and plans to have another smart port at the New Busan Port next year.

Harim is aiming for revenue diversification through the deal. While its subsidiary Pan Ocean is a bulk carrier service provider, HMM is specialized in container shipping.  

It anticipates that the acquisition of HMM will broaden its sales networks and save vessel fuel via economies of scale.

The sellers have also requested Harim and Dongwon to offer plans on how they would deal with the 1.68 trillion won worth of convertible bonds (CBs) and bonds with warrants (BWs) that KDB and KOBC jointly hold.

HMM’s market cap amounts to 10.8 trillion won, based on its closing price of 15,670 won on Friday.

Write to Jong-Kwan Park and Jun-Ho Cha at pjk@hankyung.com

Jihyun Kim edited this article.