Is Hapag-Lloyd Well-Positioned to Make a Bid for HMM?

Amid a decline in profits and liquidity, Hapag-Lloyd emerges as a contender to bid for South Korean carrier HMM. Though its financials have taken a hit, the German company is exploring the possibility of acquiring HMM as part of its expansion strategy.

Is Hapag-Lloyd Well-Positioned to Make a Bid for HMM? (Photo: Phaata)

Recent reports from South Korean media suggest that Hapag-Lloyd has approached Samsung Securities, entrusted with managing the sale of HMM shares, to request an Information Memorandum. While the closing date for bids is set for August 21st, Hapag-Lloyd's participation remains unconfirmed. However, the company has enlisted Goldman Sachs as advisors, indicating its interest in the potential acquisition.

A spokesperson from Hapag-Lloyd neither confirmed nor denied the bid, stating, "Hapag-Lloyd is always studying possibilities to further develop and grow our business. In that context, we also explore whether investing in other Liner businesses could create an even stronger player in the global shipping industry."

Industry experts see this move as a logical one, given HMM's availability for sale. With profits soaring for major shipping lines in recent years, ample financial resources exist within the industry. As one analyst pointed out, "HMM is for sale so why wouldn't they look at it?"

Hapag-Lloyd has a history of strategic expansion through mergers and acquisitions. The company has absorbed CP Ships, integrated UASC into its operations, taken over CSAV's liner business, and acquired NileDutch.

Nonetheless, the container shipping sector may be tightening its belt. H1 volumes decreased across trades except Africa, and rate levels have prompted Hapag-Lloyd to revise its 2023 EBIT forecast to $2.1-$4.3 billion, a significant decrease from the $19.13 billion achieved in 2022.

Furthermore, Hapag-Lloyd's major shareholders have enjoyed substantial dividends. However, liquidity has witnessed a substantial drop, from €12.6 billion at the end of the previous year to €3.6 billion by June 30, 2023, as per Alphaliner data.

Hapag-Lloyd's ability to acquire its alliance partner HMM largely hinges on successful forecasting. Korean financial institutions, the Korea Development Bank (KDB), and Korea Ocean Business Corp (KOBC), hold a combined 40.65% of shares and convertible bonds, valued at $746 million and $2 billion, respectively. The estimated total sale price for HMM is $3.74 billion, with five South Korean companies expressing interest.

The synergies between Hapag-Lloyd and HMM are evident, as both are members of THE Alliance. Hapag-Lloyd aims to bolster its presence in key Pacific and Asia-Europe trades, while HMM has a substantial stake in intra-Asian trades.

If Hapag-Lloyd proceeds with fleet expansion, it could potentially add 1 million TEU in capacity through its operational 83 ships and the additional 265,000 TEU on order. Presently, Hapag-Lloyd operates 258 vessels with a total capacity of 1.9 million TEU and an order book comprising 362,616 TEU.

Source: Phaata.com (According to SeatradeMaritime)

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