Korea’s Dongwon Group vies for HMM acquisition

Dongwon Group headquarters. [Courtesy of Dongwon Group]

South Korea’s Dongwon Group has set out on a challenge to acquire the country’s largest shipping company HMM Co. to build a comprehensive logistics system that seamlessly connects from sea to land.

The competition for acquisition is heating up faster than expected with the group’s participation after the consortium between Harim Group and JKL Partners Inc.

According to the investment banking industry on Tuesday, Dongwon Group recently received an information memorandum (IM) from Samsung Securities Co. and began reviewing the acquisition. The company is known to see the acquisition as a golden opportunity to expand its logistics business. With the acquisition of HMM, the largest container carrier company in Korea, Dongwon Group will become a comprehensive logistics company that connects maritime transportation, Dongwon Pusan Container Terminal (DPCT), and land logistics represented by Dongwon LOEX Co. However, Dongwon Industries Ltd., the holding company of Dongwon Group, has less than 500 billion won ($391.1 million) in cash assets, so it is expected to partner with a financial investor (FI) for the acquisition.

Dongwon Group is reviewing the feasibility of the investment by contacting several financial, accounting, and legal advisors who have been involved in previous mergers and acquisitions (M&A), according to sources.

The group has been growing its presence through M&As for more than 20 years. It established Dongwon F&B Co. in 2000 to expand its food business beyond tuna, acquiring Danish milk maker DM Foods Ltd. in 2005 and Haetae Dairy Co. in 2006. In 2008, the company bought out StarKist Co., the largest canned tuna brand in the U.S.

The company’s participation in the HMM acquisition is part of its expansion into logistics, which it has been pursuing since the mid-2010s.

In 2016, Dongwon acquired Dongwon LOEX, formerly Dongbu Express Co., which provided the company with a nationwide logistics network and cold chain system.

Dongwon Group also has full ownership of DPCT, which operates a container terminal port business. The acquisition of HMM will maximize synergies in the logistics business spanning land and sea.

The company’s business ranking is also expected to rise. According to the Financial Supervisory Service and the Korea Fair Trade Commission, as of March, Dongwon Group’s assets totaled 8.91 trillion won, ranking 54th, but will become 15th or higher than Kakao Corp. with 34.21 trillion won when combined with HMM’s assets in the low 25 trillion won range.

Dongwon Group is expected to proceed with the acquisition with an FI as Dongwon Industries, the holding company of Dongwon Group, has only about 474.9 billion won in cash assets, which is not enough to finance the HMM deal that is estimated at 5 trillion won. Accordingly, the IB industry believes that Dongwon Group will attract FIs such as private equity fund (PEF) management companies.

It will be interesting to see if Korea Development Bank’s goal of completing the sale of HMM within this year will be realized with the advent of Dongwon Group. LX Group, which is also known to be one of the bidders that has received an IM, but the group said it “cannot confirm” the report.

Some in the IB industry are also cautiously raising the possibility of Dongwon Group teaming up with Korea Investment Holdings Co., which has roots in Dongwon Group but is a separate entity that can provide financial support.