2023-12-23 04:00:48
[주간유통]is content that summarizes major issues that occurred in the distribution, food and beverage industry during the week in an easy and fun way. We plan to tell you about other incidents hidden behind the news and various stories that were not yet revealed in articles.
In the end, it was Harim. HMM (formerly Hyundai Merchant Marine), Korea’s largest container shipping company, has Harim as its new owner for the first time in seven years. In fact, Harim has been a general food company well known for its ‘chicken’. Starting with the broiler business, we have expanded our business to include feed, food processing, and distribution. The anecdote of Harim Chairman Kim Hong-guk, who started his business with ‘10 chicks’, is famous.
There are loud voices of concern in the market. It’s like a chicken swallowing a dinosaur. The size of the two companies is a prime example. HMM has total assets of 25.8 trillion won. It ranks 19th among domestic business groups. On the other hand, Harim currently ranks 27th in the business world with total assets of KRW 17 trillion. This is why there are many anxious reactions, ranging from Harim’s ability to raise funds to the ‘winner’s curse’.
how did they eat dinosaurs
On the 18th, Korea Development Bank and Korea Ocean Business Corporation selected Harim Group as the preferred negotiating party for the sale of HMM. The target for sale was the 57.9% stake (398,790,156 shares) in HMM held by Korea Development Bank and Korea Maritime Promotion Corporation. HMM was under management by creditors, including Korea Development Bank, due to a liquidity crisis in 2016. HMM is the only large shipping company owned by Korea.
Harim HMM asset comparison / Graphics = Bizwatch
The acquisition battle that began last July was fierce. Ultimately, Harim and Dongwon Group competed in the main bidding. Harim formed a consortium with JKL Partners, a private equity fund management company, and participated in the main bidding. Harim is known to have used around 6.4 trillion won for its desired acquisition price. It is said that the acquisition price of Dongwon was surpassed by a narrow margin. Harim plans to sign a stock purchase agreement within the year and complete the acquisition of HMM early next year after reviewing the business combination.
Harim was ‘sincere’ in this acquisition. Harim was embroiled in a controversy over fairness by requesting a three-year postponement of conversion of HMM perpetual bonds to stocks during the main bidding process. This is because if the conversion to perpetual bonds was postponed, Harim could pay tens of billions of won in additional cash dividends in the meantime. Dongwon immediately objected to this, and Harim eventually withdrew its demands and went ahead with the main bidding.
Reasons for acquiring HMM
Currently, Harim is dreaming of becoming a comprehensive food and logistics company. The ambition is to grow the company through synergy between feed and food processing and logistics businesses. A representative example is the acquisition of Pan Ocean (formerly STX Pan Ocean), Korea’s largest bulk shipping company, in 2015. To make feed, transportation of raw materials such as grain is essential. If we had a bulk carrier, we would be able to bring in raw materials more cheaply.
Harimsik Vertical Integration / Graphics = Biz Watch
Harim is a company that has grown through vertical integration. This means making the companies necessary for everything from production to sales of a product into affiliates. We have achieved success through vertical integration of raising chicks and processing chicken. This strategy is still important. In addition to Pan Ocean, Harim also has feed manufacturer Farmsco as its affiliates. Harim manages production and logistics costs through them. This vertical integration shined amid the surge in oil and grain prices.
The HMM acquisition is in the same context. Harim’s acquisition of HMM is Pan Ocean. Harim expects HMM, which focuses on container ships, to create synergy with bulk shipping company Pan Ocean. You can strengthen your sales power by sharing your shipper network. Fuel costs for ships will also be reduced through economies of scale. In fact, it can monopolize the domestic shipping industry.
If the acquisition is successfully completed, Harim’s total assets will exceed 42 trillion won. You can immediately jump to 13th place in the business rankings. It will surpass Hanjin (KRW 37.826 trillion), which ranks 14th in domestic business circles, and Kakao (KRW 34.207 trillion), which ranks 15th. It ranks shoulder to shoulder with KT (KRW 45.866 trillion) in 12th place and CJ (KRW 40.697 trillion) in 13th place. Chairman Kim’s emotions will also be special. The business that started with 10 chicks has now become a large company in name and reality.
nevertheless
Of course, the outlook is not all rosy. There are greater concerns in the market. First of all, there are questions about Harim’s ability to raise funds. Harim’s proposed acquisition price of HMM of 6.4 trillion won is more than 60% of Harim’s current cash reserves of 10 trillion won. The Harim and JKL Partners consortium will need to raise funds for the acquisition by selling securities or issuing perpetual bonds.
It is unclear whether Pan Ocean’s operating know-how will also apply to HMM. In the shipping industry, container ships are referred to as buses. We operate regular routes on designated routes. Bulk carriers, on the other hand, are taxis. Certain cargoes, such as minerals and grains, are often transported irregularly. Even the same maritime transportation has very different characteristics. In particular, container shipping is expected to experience a recession due to the global economic downturn. In fact, HMM’s operating profit in the third quarter plummeted 97% compared to the previous year.
Harim Chairman Kim Hong-guk / Graphic = Biz Watch
For this reason, the possibility of a ‘winner’s curse’ is also raised. Even if you raise funds for the acquisition, the problem lies after that. In a situation where basic strength is weakened, the slump in the shipping industry may be prolonged. This could put the entire Harim at risk. In fact, in the past, Kumho Asiana rose to 7th place in the business world by sequentially acquiring Daewoo Engineering & Construction in 2006 and Korea Express in 2008. However, the financial structure deteriorated due to the enormous borrowings incurred during this process, and the group was almost disbanded.
Of course, Harim is confident in the stable operation of HMM. The position is that the portfolio of HMM and Pan Ocean will be able to overcome the recession in the shipping market. He also dismisses the availability of funds for the acquisition, saying, “Contrary to what is known in the market, the size of the acquisition financing is less than 2 trillion won.” In the future, we plan to grow HMM into the world’s top 5 shipping companies. Will a ‘chicken’ be able to swallow a ‘dinosaur’? Let’s watch together to see whether it will be ‘an act of God’ or ‘poison or the holy grail’.
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