Harim gives up HMM deal over management rights dispute

South Korea's leading poultry processor Harim Co. has walked away from a $5 billion deal to buy HMM Co., South Korea’s No. 1 ocean carrier, rejecting the seller’s condition that they still have a say in HMM management after the deal, Harim said on Wednesday.

Harim also failed to narrow differences with the Korea Development Bank (KDB) and the Korea Ocean Business Corp. (KOB) over the five-year lock-up demand by the two state-run institutes for its consortium partner JKL Partners, according to sources with knowledge of the situation.

"It was a tough negotiation with the seller, composed of a (state-run) bank and a state-run company," a Harim Group official told The Korea Economic Daily after the deal collapsed.

"No company will likely accept a deal, where the buyer is given the largest shareholder position without the guarantee of exercising actual management rights."

In December last year, a consortium of Harim and Seoul-based JKL Partners was chosen as the preferred buyer of a 57.9% stake in the shipping company. The consortium offered 6.4 trillion won ($5 billion) for the stake, about 200 billion won higher than the other shortlisted bidder Dongwon Group, a seafood company.

The two state-owned institutes and the Harim consortium extended the deadline for their first-round negotiations to Feb. 6.

KDB and KOB argued they should continue to monitor HMM as its top creditors, considering HMM’s influence in the country’s shipping industry. Particularly, KOB and the Ministry of Oceans and Fisheries were said to have held firm on the conditioin.

The Harim consortium finally decided to give up the acquisition and did not reply to the demand by midnight of Feb. 6.

In the later stages of their talks, Harim retracted some of its early demands, such as that KDB and KOB must not convert their remaining perpetual bonds of 1.68 trillion won ($1.3 billion) in HMM into equities for three years. This had been the most controversial issue between the two sides.

If the state-run bodies had carried out the conversion, Harim’s ownership in HMM would have decreased to a 38.9% stake from 57.9%.

Harim had also withheld the request that it would be granted preemptive rights for new shares to be issued based on the convertible bonds.

MISSED THE BOAT ON TIMING?

Now the planned sale of HMM is back to square one, KDB and KOB will remain the largest shareholder and creditors of Harim with a 57.9% stake, alongside the bonds of 1.68 trillion won.

They are allowed to exercise call options on the bonds by next year and plan to convert all of them into equities to avoid negligence claims, according to their officials.

They are expected to put HMM back on the market, but have not indicated when they will do so. The state-owned bodies could face criticism for missing the optimal moment to restructure the country’s shipping industry amid the shipping industry slump.

KDB and KOB were not immediately available for comment.

HMM was placed under creditor protection in 2016, hit by the shipping industry slump but has bounced back in the wake of the COVID-19 pandemic amid disruptions to logistics and supply chains. 

Industry observers say the unfavorable business environment surrounding HMM will pose a challenge to a renewed attempt to divest HMM.

Last month, Maersk of Denmark and Hapag-Lloyd of Germany, the world’s leading shipping companies, announced the establishment of an operational collaboration, named the Gemini Cooperation, in February 2025, decoupling from THE Alliance formed with Asian shipping companies.

With their exit, THE Alliance will be left with only Asian shipping firms, which could lead to fierce price competition between them and the Maersk and Hapag-Lloyd partnership.

Meanwhile, Dongwon Group said it is difficult to say for now whether or not they will make a new bid for HMM.

In September last year, Dongwon Group founder and honorary chairman Kim Jae-chul told reporters that acquiring HMM was "the last dream of my life."

(The second paragraph from the top was corrected on Feb. 8. The proposed lock-up period was five years)

Write to Jun-Ho Cha, Jong-Kwan Park and Se-Min Huh at chacha@hankyung.com

Yeonhee Kim edited this article.