[M&A Behind the Scenes] HMM Acquisition Battle... Reasons for Delay in Selecting Preferred Negotiation Partner

Harim-JKL Consortium Selected as Preferred Bidder at 6.4 Trillion Won
Harim-Dongwon Two-Way Battle Sparks 'Unfair Controversy'
"Revised Proposal Is a Legitimate Bidding Process"

Harim Group-JKL Consortium has acquired Korea's largest shipping company HMM for 6.4 trillion won. They were selected as the preferred bidder by submitting the highest price in the final bidding. The Korea Development Bank (KDB) and Korea Ocean Business Corporation (KOBC) announced on the 18th that Harim Group was selected as the preferred bidder for the sale of HMM. The sale target is 57.9% of HMM shares (3,987,915,615 shares) held by KDB and KOBC. They plan to sign a stock purchase agreement (SPA) within the year and complete the acquisition process by early next year after undergoing corporate merger reviews. Harim Group, which formed a consortium with private equity fund (PEF) manager JKL Partners to participate in the acquisition, submitted a bid price around 6.4 trillion won. It is reported to have narrowly surpassed the bid price of Dongwon Group. The sellers selected the preferred bidder by comprehensively evaluating the bid price, funding plans, and post-acquisition management plans.

What is the truth behind the heated 'unfair controversy' amid the two-way battle between Harim and Dongwon?

The selection of the preferred bidder for the HMM sale was slightly delayed compared to market expectations. This was due to controversy over conditions requested by Harim Group before the final bidding. Before the final bidding, KDB reportedly sent SPA drafts to acquisition candidates with conditions including ▲holding HMM shares for 5 years after acquisition ▲limiting annual dividends to 500 billion won for 3 years (total 1.5 trillion won) ▲the right to nominate outside directors. These conditions were interpreted as measures to prevent acquirers from misusing HMM's cash assets worth over 10 trillion won or engaging in 'eat-and-run' behavior by temporarily raising stock prices and reselling shares.

Unlike Dongwon Group, which accepted these conditions, Harim Group reportedly requested that shares held by JKL Partners, a financial investor (FI), be exempt from the 5-year holding condition, and that perpetual bonds worth 1.68 trillion won held separately by KDB and KOBC not be converted into shares for 3 years. When this information leaked, Dongwon Group, the competitor, protested that it was unfair and announced it was considering legal action.

However, the investment banking (IB) industry views 'markups' (revised proposals) during bidding as an essential procedure. Generally, when the seller sends an SPA draft to acquisition candidates, the candidates submit revised proposals. The seller then selects the preferred bidder based on the bid price and revised proposals. It is a natural right of acquisition candidates to submit revised proposals, so it is inappropriate to argue unfairness regarding Harim's requests.

Some reports claimed that the Harim-JKL consortium withdrew all revised proposals to gain an advantage in this acquisition, but this is not true. A key JKL Partners official leading the deal said, "It is common not to communicate with the seller after submitting revised proposals and bids. Although it may seem like we kept making additional requests, it is difficult to do so from the evaluation standpoint, and such behavior is impossible in normal M&A procedures."

During the bidding process, acquisition candidates sufficiently markup the draft through the sale agent. Items not marked up are not subject to negotiation. Buyers naturally list all their desired conditions. The Harim Group-JKL consortium claims there was no further contact with the seller after bidding.

He explained, "If competitors did not request markups, they simply accepted the terms, and we asserted our rights. Both parties were fairly given the opportunity to present their requests." He added, "From the buyer's perspective, paying astronomical amounts and negotiating the contract in good faith is the principle of sincerity."

A key Harim official leading the deal also confirmed, "We have had no contact with the sale agent since submitting the bid. There was no communication after the official proposal during the bidding process."

However, since the Harim Group-JKL consortium was selected as the preferred bidder, all matters including revised proposals will be back on the negotiation table during contract negotiations, and revisions or withdrawals will be possible.

Concerns over industry downturn... HMM operating profit plunges from 10 trillion won to 500 billion won range

Considering the shipping industry's downturn and the amount of public funds invested so far, the industry hopes the final selection of the acquirer will be concluded smoothly without discord. Immediate performance is sharply declining.

HMM achieved an operating profit of 9.95 trillion won last year, but this year's operating profit consensus (securities firms' forecast) is 564 billion won, a 94.3% decrease from the previous year. This is due to the global industry downturn and intensified 'chicken game' competition among shipping companies.

Next year, sales are expected to increase by 4.19% to 8.751 trillion won compared to this year, but the operating profit consensus is forecasted to drop 34.19% to 371.2 billion won. Compared to last year, this is a 96.26% decrease.

Researcher Ryu Jaehyun of Mirae Asset Securities said, "A short-term market turnaround is hard to predict. Due to oversupply, supply-demand conditions have not improved, and rather than demand improving, the market is expected to continue facing downward pressure due to supply pressure."

If the HMM sale is delayed, it may become difficult to receive a fair price. There are calls to expedite the sale before the downturn fully materializes. Currently, HMM's market capitalization is around 12 trillion won. The public funds invested by KDB in HMM are estimated to be in the 7 trillion won range.

This content was produced with the assistance of AI translation services.