Harim Group, one of South Korea’s biggest agri-food companies, will form a consortium with a mid-size private equity fund JKL Partners Inc. for the acquisition of the country’s largest shipping company HMM Co.
According to investment banking industry sources on Monday, the Harim-led consortium recently received an information memorandum (IM) concerning HMM from Samsung Securities Co. Harim is reportedly considering the acquisition aiming at synergy with its bulk carrier Pan Ocean Co.
Harim is expected to acquire a major stake in the shipping company while JKL Partners is likely to use blind funds and other instruments to acquire a minority stake.
With the Harim-JKL consortium’s participation, the race to acquire HMM has entered a new phase.
Market insiders have been skeptical about the acquisition of the largest Korean sea flag carrier. There has been no potential buyer other than SM Group since KDB Chairman Kang Seog-hoon expressed intentions to sell HMM last month.
With the joining of Harim Group with assets of 17.1 trillion won ($13.3 billion), however, competition is likely to be enhanced.
The Harim-JKL consortium is reportedly to be considering acquiring some of the 1.68 trillion won remaining perpetual bonds, in addition to the 1 trillion won permanent bonds that the KDB and the Korea Ocean Business Corp. (KOBC) have announced they will convert into stocks by October.
The perpetual bonds being held by the seller even after the takeover of the control may be burdening for the consortium, they believe. The consortium is assessed to have an advantage in terms of financing since it can utilize Harim group’s cash and cash-equivalent assets, while also attracting blind funds, project funds, and loans for the acquisition through JKL Partners.
Various synergies are expected between Harim Group and HMM. While Harim’s Pan Ocean is more focused on bulk carriers, HMM’s primary business centers around container ships. With the two combined, some synergy is expected in the group’s portfolio.
JKL Partners, as one party to the consortium, has been collaborating with Harim for about a decade.
In 2012, JKL Partners assisted in the process of Harim selling NS Shopping Co.’s NS Mart to E-Mart Inc. In 2015, they also had a partnership in a joint acquisition of Pan Ocean.
Despite skepticism that they would not be able to raise the 108 billion won for the deal, JKL Partners succeeded in the final acquisition and retrieved funds equivalent to 2.76 times the principal, with the internal rate of return standing at 32.5 percent.
After the acquisition, Pan Ocean’s annual sales increased to about 6.42 trillion won last year from around 1.8 trillion won in 2015. During the same period, operating profit also increased to about 800 billion won from around 200 billion won.
The target of the HMM deal is a total of 398.79 million common shares. This includes the 198.79 million common shares held by the KDB and the KOBC. Additionally, there are the conversion rights and new share acquisition rights for 100 billion won worth of convertible bonds and bonds with warrants that will be due in October, resulting in a total of 200 million common shares.
Even after the sale, KDB will still retain approximately 1.68 trillion won worth of HMM perpetual bonds. KDB plans to minimize the impact on the stock market as it seeks the sale of the perpetual bonds, while consulting with the acquisition side in various aspects.