HMM Sale Negotiations Face Global Shipping Alliance Reorganization

With about one week to go until the end of negotiations for the sale of HMM, new uncertainties are affecting the future of the negotiations as global shipping industry alliances begin to reorganize. With the management of HMM in limbo as Denmark’s Maersk and Germany’s Hapag-Lloyd form a new alliance, the seller group and potential buyers are having a confrontation while fighting a war of nerves.

According to sources in business and investment banking circles, the Harim consortium, including Pan Ocean and JKL Partners, requested a presentation from the sellers including Korea Development Bank (KDB) and Korea Ocean Business Corporation, on HMM’s response to the global alliance reorganization last week. However, the sellers refused, saying it was difficult to disclose key issues of the shipping company’s management without signing a stock purchase agreement (SPA). The sellers believe that the request is Harim’s move to gain an advantage in the negotiations as the reorganization of the alliance, which was scheduled to take place in the first half of this year as part of the European Union’s abolition of the Consortia Block Exemption Regulation (CBER).

Hapag-Lloyd has led The Alliance, one of the world’s three largest shipping alliances that included HMM and other Asian carriers such as Japan’s One and Taiwan’s Yang Ming. But the global shipping industry is on the verge of a major shakeup, with Hapag-Lloyd announcing its departure from The Alliance on Jan. 17 and deciding to form a new alliance, Gemini, with Maersk a year later.

The creation of the new alliance that will reshape global shipping alliances has actually made HMM’s business environment more uncertain. The Korean shipping giant has jointly handled most of its European-bound traffic with Hapag-Lloyd. If HMM is not included in the new alliance with other European carriers it will not easily be able to compete. Harim believes that HMM has not been well prepared for the alliance realignment and it will have a tough time managing if the SPA is signed as the sellers are now demanding.

However, the sellers’ position is that Harim’s weak financial power is what has made the negotiations so difficult. In fact, Harim needs to raise more than 5 trillion won in new funds, including up to 3 trillion won from a capital increase, by issuing new stocks of Pan Ocean and 2 trillion won via acquisition financing. Most of the 6.4 trillion won for the purchase of HMM will have to come from outside sources.

Nevertheless, Harim which has a strong will to acquire HMM is reportedly leaning toward dropping its demands for signing the SPA. However, Harim wants dividends, which are limited to 500 billion won per year by the sellers, to be increased to be utilized more freely.
Source: Business Korea