Dongwon threatens lawsuit over HMM bidding war

HMM's Oackland container ship [HMM]

Dongwon Group — one of the contenders seeking to buy Korea's largest shipping company, HMM — has challenged the fairness of the bidding process, injecting a new layer of complexity into its heated competition with Harim Group.

Dongwon raised objections to the Harim-JKL Partners consortium's request for a three-year deferral to the conversion of HMM's perpetual bonds into shares totaling 1.68 trillion won ($1.27 billion), the seafood company said Monday. The firm formally communicated its protest in a letter to the main creditors, the Korea Development Bank (KDB) and the Korea Ocean Business Corporation (KOBC), expressing that had the conditions of the deferral been known earlier, Dongwon could have presented a higher bid.

Dongwon underscored its intention to pursue legal actions, including injunctions, should the selling side entertain Harim's request.

HMM, which has been under a creditor-led debt restructuring plan since 2016, experienced a surge in business during the Covid-19 pandemic driven by a rapid rise in freight charges. This year, however, witnessed a downturn as freight charges receded.

The official bidding process for the acquisition of HMM began on Nov. 23, with Dongwon and Harim participating. Canned tuna giant Dongwon owns subsidiaries in land logistics through Dongwon Loex and port operations through Dongwon Pusan Container Terminal. Harim, best known for its poultry products, is the parent company of Pan Ocean, the country’s largest dry bulk shipping company.

The stake up for sale is 38.9 percent, or 398.8 million shares of HMM. Pre-conversion, HMM's ownership stake was 57.9 percent, while the conversion of the perpetual bonds would reduce the stake to 38.9 percent.

Harim's proposal for a three-year deferral in stock conversion would maintain the ownership stake at 57.9 percent, enabling the acquiring company to receive an annual dividend of approximately 289.5 billion won. In contrast, with a 38.9 percent ownership stake, the annual dividend would reduce to 194.5 billion won. This difference would amount to an additional 285 billion won over three years.

“The 38.9 percent ownership stake post-conversion is a fundamental condition for the sale,” an official from Dongwon said. “If the selling side had imposed deferral conditions, we would have proposed a higher bidding price.” The Harim-JKL Partners consortium has reportedly outbid Dongwon.

“Accepting the deferral request would change the fundamental conditions — It's like moving the goal posts during a soccer match,” commented an industry official who requested anonymity.

“As the bidding is still ongoing, we have no official stance to share at this time,” Harim said.

It was initially expected that the preferred negotiating party would be announced by the end of November. That announcement, however, is currently delayed due to the ongoing standoff between the two sides, while some quarters speculate that the process might collapse.

BY CHOI EUN-KYEONG, SEO JI-EUN [seo.jieun1@joongang.co.kr]