Final Bids Submitted in Two-Way Showdown to Win Control of HMM
Final bidding began today for control of HMM with reports from South Korea that one of the three companies pre-qualified dropped out. The estimated price tag for control of the world’s eighth largest container shipping company is believed to have increased with the two state-run financial institutions looking for between $4.6 and $5.4 billion for a 58 percent stake in the company and management control.
Korea Development Bank declined to comment to the Korean media about the specifics of the bids which were due today. A spokesperson however confirmed to the Korean JoongAng Daily that there was more than one bidder in the final round. The bank said at the close of the day “A workable competition has been established for HMM."
The bidding process was launched earlier this year with multiple Korean companies expressing initial interest but only three submitted first-round proposals. Hapag-Lloyd also expressed interest but was excluded from the process as the banks wanted to retain ownership of HMM in South Korea. The owners of SM Line, South Korea’s second-largest container shipping company expressed interest but did not enter a bid.
Media reports indicate that Dongwon Group, which has a shoreside logistic business and operates a container terminal in Pusan, was one of the two final bidders. The other is the Harim Group, which is the parent of Pan Ocean, a large dry bulk carrier. Harim is believed to be partnering with the JKL Consortium, a large financial institution in Korea. The third pre-qualified bidder, Korean conglomerate LX International with a global logistics company as well as chemical, semiconductors, natural resources, and low e-glass, is believed to have not submitted a final bid.
One of the key challenges to the deal is reported to be the financial expectations of KDB and Korea Ocean Business Corp. Reports indicate that the creditors, which began the restructuring of the shipping company then known as Hyundai Merchant Marine in 2016, are expecting a management premium above the current market value of the company’s shares. They completed a conversion of bonds placing a total of approximately 380 million shares up for sale. They are believed to be citing the 30-day average from the stock price of $11.75 per share, which is below today’s market close of $12.52 per share. The low end of the projected price range is $4.6 billion, equal to the share value before adding in a management premium.
The market price of HMM’s shares however is down significantly due to the declines in the container shipping business. The share price is off 70 percent from its 2021 peak.
Overhanging the market after the sale will be a further 336 million convertible shares held by the two financial institutions. They have indicated that they would work with the buyer to develop a plan for the additional shares. Near-term it is believed the banks would continue to hold their convertible perpetual bonds but would eventually be looking to sell those shares as well.
The financial institutions have previously said they wanted a buyer with strong management experience and the financial strength to continue to invest in the development of HMM. The carrier has placed orders for new containerships as well as moving to expand its operations in both tankers and dry bulk. It was also speculated that they were among the interested buyers for Hyundai LNG, the gas shipping company that had been sold off during the reorganization of the company. The investment bank controlling the LNG carrier has reported that it is looking to sell the shipping company.
KDB and KOBC are working with Samsung Securities which is managing the bidding for HMM. They have reported that they will review the financial status, management capabilities, and operational plans for HMM developed by the bidders. The preferred bidder is now expected to be named by next month although media speculation continues that the financial institutions might also withdraw the offering if their target price is not achieved.