Poultry processor Harim to buy Korean top sea carrier HMM for $5 bn

South Korea’s leading poultry processor Harim Group is set to acquire the country’s No. 1 sea flag carrier HMM Co. for about 6.4 trillion won ($4.9 billion) to become a shipping company large enough to compete with global major names such as Maersk and Mediterranean Shipping Company S.A. (MSC).

HMM’s main creditors -- the state-run Korea Development Bank (KDB) and the state-held ship finance institution Korea Ocean Business Corp. (KOBC) -- said on Monday they selected Harim as the preferred bidder to which they would sell their 57.9% stake.

They plan to sign a share purchase agreement this year for the completion of the deal early next year after necessary processes such as a review by the antitrust regulator.

Pan Ocean Co., Harim’s bulker line subsidiary leading the takeover, is expected to create synergy through the deal as HMM focuses on container ships, industry sources said. Pan Ocean and HMM are predicted to share client networks to improve their sales forces while reducing fuel costs on economies of scale, the sources added.

The acquisition is likely to further bolster Harim, which has established vertical integration from raw materials to processed foods.

HARIM GIVES UP EARLIER REQUESTS FOR ACQUISITION

Harim reportedly withdrew all it earlier controversial requests such as the three-year delay in the conversion of perpetual convertible bonds (CBs) and the right to name outside directors for HMM, industry sources said.

That caused sellers to pick up Harim as a preferred bidder.

Its strong competitor Dongwon Group, South Korea’s leading seafood and logistics conglomerate, offered a bid around 100 billion won lower, industry sources said.

Dongwon has been preparing for the takeover of HMM since earlier this year before it was officially put on sale. In September, Kim Jae-chul, the group’s founder and honorary chairman, expressed his strong determination, saying “Acquiring HMM is the last dream of my life.”

The group’s bid fell short of the price offered by Harim, however.

“It was more important to offer a bid we can handle than one we could not afford and suffer the winner’s curse,” said a Dongwon official.

WINNER’S CURSE

Harim’s acquisition of HMM may not bring the success the group hopes, given the recent downturn in the global shipping industry, some analysts warned. The container line reported an operating profit of 70.6 billion won in the third quarter, down 97.3% from a year earlier.

Harim is expected to see difficulties in financing the deal, some analysts said. The group joined hands with Seoul-based private equity firm JKL Partners for 750 billion won and planned to sell Pan Ocean’s perpetual bonds for 500 billion won.

The group defied such concerns as it started raising money. It is preparing for the sale of the perpetual bonds and seeking financial support from construction conglomerate Hoban Group. Harim is set to liquidate Pan Ocean’s vessels while planning the rights offerings of the group affiliates.

“We have received letters of commitment for acquisition financing of more than 3 trillion won, but we plan acquisition financing of less than 2 trillion when we raise money for the deal,” said a group official. “The various financial costs are not small, but the group can manage them.”

FINANCING PLANS

The group may have to revise all of the financing plans as it gave up the requests it had sought.

Harim had planned to ask to postpone the conversion of perpetual CBs worth 1.7 trillion won for three years. The delay, if accepted, was expected to keep Harim’s stake at 57.9% and allow the group to collect annual dividends of 289.5 billion won for three years.

But the conversion is slated to dilute Harim’s stake to 38.9% and the dividends will shrink to 194.5 billion won, which will force the group to raise 285 billion won more for the acquisition.

The deal may face a hurdle from the country’s antitrust watchdog as the merger between Pan Ocean and HMM will create a mega shipping company with which few domestic rivals can compete.

Some shipping industry sources said the deal may not add to worries about competition since Pan Ocean is focusing on bulk carriers while HMM is working on container ships.

Write to Jong-Kwan Park at pjk@hankyung.com
 

Jongwoo Cheon edited this article.