April 27, 2024

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A promotional video of HMM is played at the shipper's headquarters located in Yeouido, western Seoul on Nov. 23. Korea Development Bank said Tuesday the sale of HMM fell through as the entities were unable to reach an agreement over the details of the acquisition. (Newsis)

The sale of top container shipper HMM drifted away late Tuesday, as negotiations between two state agencies and a local consortium broke off after weeks of remaining at odds over the terms.

The state-run Korea Development Bank and Korean Ocean Business Corp. holding a combined 57.9 percent stake in HMM, had been in talks with a local consortium formed by agri-food giant Harim and private equity firm JKL Partners, to sell off the shipper.

The stock purchase agreement deal was to be worth 6.4 trillion won ($4.8 billion). If proceeded, the Harim-JKL alliance would hold the controlling stake in HMM, while the state institutions would continue to own 1.68 trillion won perpetual bonds, which would have been converted into equity over time.

The sales entities, however, announced Tuesday that negotiations had fallen through.

"Though KDB and KOBC were in the talks with the preferred bidder under mutual trust over the past seven weeks, we were not able to reach an agreement over different views on some details," the announcement read.

Harim, owner of the country’s largest poultry processor Harim Co., issued a separate statement, expressing regret over the withdrawal.

"We have been involved in the talks, suggesting constructive views to secure stable management of HMM and improve its global competitiveness, but the talks have fallen through with regrets,” the statement read.

The talks, which started on Dec. 20 last year, were to be concluded by Jan. 23, but the deadline was delayed to Tuesday, as the involved parties were reportedly unable to come to terms on issues including management rights.

While Harim asserted it should have full control over management rights, the state institutions viewed they should be involved to certain extent to ensure that HMM’s cash reserve over 11 trillion won will not be used for businesses other than shipping.

"No private company can easily accept a deal that only makes it the biggest shareholder without guaranteeing actual management rights," Harim's statement read. "We will work to strengthen the competitiveness of Korea's shipping through dry bulk shipper Pan Ocean."

Pan Ocean is a logistics firm that Harim took over in 2015 in a bid to become a global agricultural powerhouse.

A discrepancy over the clause that the buyer must hold HMM shares for at least five years was a major deal breaker as well, industry watchers viewed.

While Harim pushed to exclude JKL Partners from the five-year term, as the private equity fund acting as a financial investor in the deal would need to exit the investment within a few years, the sales entities did not allow the exception.

With the negotiations called off, HMM will remain under credit management by KDB and KOBC. Though the main creditors are likely to opt for another sales attempt, the sell-off may not easily work out, as Harim leaving the negotiation table shows the terms of the sale could be disagreeable for any potential buyer.

In addition, the looming volatility of the shipping industry is not in favor of HMM, including the ongoing reshuffle of the global carrier alliance and accelerating geopolitical risks in the Red Sea.

Potential acquirers are cited to be food and logistics conglomerate Dongwon Group and LX International, the trading arm of Korea's LX Group, which had previously participated in the HMM acquisition deal.

Dongwon continued to battle against Harim to be the preferred bidder to the last minute, but was eventually outbid. The firm said Wednesday it will continue to keep watch on the situation, though nothing has been decided yet.

While there were concerns that Harim could face a debt overhang in financing the acquisition, the deal break could be rather beneficial for Harim, industry watchers said.

"For Harim, the fall through of the acquisition could be positive as the deal financing was overwhelming in the first place, requiring a major paid-in capital increase of Pan Ocean. In addition, it was not even ensured of independent management rights of HMM from KDB and KOBC,” Bae Se-ho, an analyst from Hi Investment & Securities, viewed.

With the collapsed deal, Harim shares closed at 3,135 won, marking a 16.18 percent drop from the previous closing price of 3,740 won, while HMM shares stood at 19,080 won, slipping from 19,160 won. Shares of Pan Ocean, on the other hand, advanced to 4,335 won, up 21.09 percent from 3,580 won, as the concerns of a paid-in capital increase to finance the HMM acquisition has been lifted.

By Im Eun-byel (silverstar@heraldcorp.com)