Harim's $4.9 billion HMM acquisition off after sides fail to reach deal

[HMM]

Harim's bid to acquire HMM fell through after seven weeks of negotiations, after the creditors of Korea's largest shipper refused to accept Harim's requests.

The Korean poultry processor lost its preferred bidder status for the 6.4 trillion won ($4.9 billion) deal. HMM will remain under creditor management by state-owned Korea Development Bank (KDB) and the Korean Ocean Business Corporation (KOBC) until another preferred buyer materializes.

Negotiations broke down due to “disagreements on certain issues,” creditors announced after midnight on Wednesday without specifying details.

A consortium of Harim and Seoul-based private equity fund JKL Partners was selected as the preferred bidder for the 57.9 percent stake in HMM held by KDB and KOBC in December.

Both sides were expected to finalize agreement details Tuesday after extending a Jan. 23 deadline.

During negotiations, the Harim-led consortium had reportedly demanded a three-year deferral in the conversion of perpetual bonds into equity post-purchase, which would allow them to collect more annual dividends for three years — but later withdrew.

However, discussions regarding management rights over the largest national shipper stalled.

Harim reportedly requested a five-year limit to the validity period for the shareholders' agreement, after which all clauses, including restrictions on HMM's cash dividends, a ban on selling stakes for a specified time, and the government's right to appoint HMM's outside directors, would be nullified. Harim requested an exception to the stake sale ban for JKL Partners, as it needs to recover investment funds after a specific period as a financial investor, which ultimately led to the breakdown in negotiations.

KDB aimed to swiftly sell HMM to recoup injected public funds, but KOBC insisted on maintaining management rights to the national shipper in order to prevent the misuse of cash assets.

“Negotiations were tough due to differing stances between the sellers, composed of a [state-run] bank and state-run company,” Harim said in a statement Wednesday. “Any private company will find it difficult to accept a deal that would allow only the biggest shareholder status without guaranteeing substantive management rights.”

HMM's labor union, which remained skeptical due to Harim's small asset size compared to that of HMM, welcomed the scrap of the deal.

“The shipping industry is a key national sector of which state oversight and management are necessary,” HMM's labor unions said in a joint statement Wednesday. “However, throughout the sale process, the shipping industry has consistently voiced concerns over the preferred bidder's inadequate and opaque fundraising plans as well as their refusal to accept even minimal supervision from state authorities.

“Today's decision, which echoes the urgent pleas of the shipping sector, marks a pivotal moment for Korea's maritime industry,” the unions said.

Plans for a resale remain up in the air.

“The resale of HMM, including the method and period, is uncertain, with discussions with relevant agencies such as KOBC required,” a KDB official told the Korea JoongAng Daily Wednesday.

Market watchers believe HMM's sale process will face delays given uncertainties in the global shipping industry, including the departure of Germany's Hapag-Lloyd from THE Alliance and the activity of Yemen's Houthi in the Red Sea.

The 1.68 trillion won worth of perpetual bonds held by KDB and KOBC, for which they can exercise a call option this year and in 2025, pose a hurdle for major domestic companies that could potentially enter a new bidding process for HMM. Should they exercise that option, KDB and KOBC would hold 32.8 percent of HMM, a comparable sum to the acquirer's 38.9 percent.

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