Germany’s cash-rich Hapag-Lloyd joins bid to buy HMM

HMM Co. headquarters. [Photo by Han Joo-hyung]

The race to buy South Korea’s largest shipping firm HMM Co. is heating up with the joining of Hapag-Lloyd AG, Germany’s top container shipping company.

According to sources from the investment banking sector on Thursday, Hapag-Lloyd, advised by Goldman Sachs Group Inc., recently submitted a preliminary bid to acquire HMM.

Other bidders are Harim Group-JKL Partners consortium, LX Group, and Dongwon Group. Hapag-Lloyd is the sole foreign contender and reportedly submitted the highest bidding price.

Hapag-Lloyd is Germany’s largest and the world’s fifth-largest container shipping company. Since its establishment in 1847, it has expanded its businesses through continuous mergers and acquisitions (M&A).

In recent decades, the company bought Canada’s CP Ships Ltd. in 2005, the container shipping division of the Chilean shipping company, Compania Sud Americana de Vapores S.A. (CSAV) in 2014, and the Dubai-based United Arab Shipping Co. in 2017.

Currently, it operates 258 container ships with a carrying capacity of 1.9 million twenty-foot equivalent units (TEUs).

Hapag-Lloyd is reportedly aiming to elevate its global market ranking to the top three through the acquisition of HMM.

If the two companies combine, boasting a fleet of 341 operational ships and a market share exceeding 10 percent, they could compete on equal footing with the global leaders like Mediterranean Shipping Company S.A. (MSC) and A.P. Moller - Maersk A/S.

HMM is a member of Hapag-Lloyd’s shipping alliance, THE Alliance, affording Hapag-Lloyd an intimate understanding of HMM and the potential for cost savings through economies of scale.

The Korea Development Bank and the Korea Maritime Promotion Corp., the sellers of HMM, appear increasingly contemplative due to Hapag-Lloyd’s participation in the acquisition process as the sale of the national carrier to a foreign entity was not initially in their plan.

Observers note that there is little doubt that Hapag-Lloyd will likely have the opportunity to advance to the main bidding stage.

According to Hapag-Lloyd’s website and sources within the shipping industry, the German carrier‘s cash reserves stood at approximately $10 billion as of June. This amount substantially surpasses the cash and cash-equivalent assets of other candidates, which are 1.5 trillion won ($1.13 billion) or lower.

However, there are some concerns within the industry about a potential takeover of the national carrier by the German company.

On Wednesday, the Federation of Korea Maritime Industries and the Busan Port Development Association released a joint statement, saying that the sale of the national carrier to Hapag-Lloyd may lead to an outflow of invaluable national assets, including the country’s container shipping assets, terminals, and decades-worth of accumulated maritime logistics expertise.

Some even raise skepticism about the authenticity of Hapag-Lloyd’s bid, suggesting that the company is more interested in gaining an in-depth understanding of HMM’s information during the due diligence process than solely pursuing an acquisition.

Industry insiders noted that Hapag-Lloyd may be removed from the shortlist for the main bidding. Some M&A experts raise the possibility that the seller may amplify fair trade-related merger issues and regulations to effectively exclude foreign players from participating in the main bidding process.