Why do minority shareholders of HMM endorse Hapag-Lloyd's bid?

An HMM ship at sea / Courtesy of HMM

Domestic maritime and port industry opposes HMM's sale to overseas company

By Anna J. Park

Following the end of preliminary bidding early last week to acquire HMM, some of the container transport company's minority shareholders have come together to support an acquisition bid by German shipping giant Hapag-Lloyd.

According to the financial industry and the minority shareholders' association, some of the minority shareholders of the group have been gathering shareholder proxy statements through their online community set up in Naver Cafe platform, aiming to endorse Hapag-Lloyd as the most suitable candidate for the acquisition.

“Korea Development Bank (KDB) and the Korea Ocean Business Corporation (KOBC) have made decisions that undermine the shareholder value of HMM,” Hong Yi-pyo, the head of the minority shareholders' alliance, said.

“The minority shareholders' alliance sees Hapag-Lloyd as the candidate that can enhance HMM's corporate value, when considering its dividend payout ratios and business synergy effects,” Hong added.

According to the investment banking and M&A industries, LX International, Dongwon Group, Harim-JK Partners consortium ― three companies headquartered in Korea ― and German shipping company Hapag-Lloyd participated in the preliminary bid to acquire HMM. Hapag-Lloyd is one of the world's top five shipping companies, equipped with ample cash power to afford the mega-sized M&A deal. The sale price of HMM, including its management premium, is expected to reach over six trillion won ($4.5 billion).

Since the preliminary round of bidding closed last Monday, the KDB is currently reviewing the bidding documents submitted by the firms and plans to select second-round qualified bidders by the end of the month.

“The KDB plans to select second-round qualified bidders by the end of the month among the companies that joined the preliminary bidding, after assessing their suitability. Following the selection, months-long due diligence will be conducted, and a preferred bidder is expected to be chosen as early as November during the main bidding process,” an official from the KDB told The Korea Times, Monday, adding that the state-run lender plans to complete the sale contract by the end of the year.

While some of the minority shareholders are preparing to express their endorsement for the German company's acquisition of HMM, the domestic shipping industry is voicing opposition, stating that Hapag-Lloyd's acquisition of the country's largest shipping company could pose a threat to the national economy.

“Selling HMM to Hapag-Lloyd could lead to an overseas leakage of Korea's priceless national assets, such as maritime logistics know-how accumulated for decades and container transportation and terminal system management,” reads the statement issued by the Federation of Korea Maritime Industries and the Busan Port Development Council.

Korea Sea Journalists' Association also expressed strong opposition to acquisition by foreign shipping companies: “It's out of the question that selling national key industries to foreign entities is unacceptable,” the statement read.

The group, however, also raised concerns over private equity funds (PEF) playing an excessive role in the acquisition deal, as participating local companies might partner with PEFs to finance the deal. The group pointed out that such partnerships with PEFs might impair the stability and sustainability of HMM as a crucial player in the domestic maritime industry.

KDB explained that the participation of foreign investors in the bidding process is not restricted in principle, emphasizing that the stable sustainability of the domestic shipping industry will be comprehensively assessed in the selection process. However, KDB Chairman Kang Seog-hoon had emphasized the significance of HMM as a national shipping company at his press conference in June.

“Considering the significance of HMM as a Korean shipping company, we hope that a company with a strong determination to contribute to the Korean maritime industry and that has enough capital and management capabilities will acquire HMM,” Kang said.