South Korea’s seafood giant Dongwon Group, one of the contenders seeking to buy HMM Co., the country’s largest container shipping line, has raised the issue of fairness in the bidding process, threatening legal action.

According to sources from the investment banking industry and business circle on Sunday, Dongwon Group delivered an official letter on Sunday, expressing regret over the fairness of the bidding process to the sellers, including the Korea Development Bank (KDB) and the Korea Ocean Business Corp. (KOBC).

“It seems that there was a request from the Harim Holdings Corp.-JKL Partners Inc. consortium to suspend the conversion of sellers’ holdings of HMM’s perpetual bonds into shares for three years,” Dongwon Group said. “But this is contrary to the sellers’ initial bidding criteria, which required the bidders to propose the purchase price based on HMM’s total number of potentially issued shares, including the perpetual bonds to be converted.”

“We will take all possible measures, including legal action, if a fair bidding process is not guaranteed,” it said.

The KDB is known to be considering a plan to suspend the conversion of HMM’s perpetual bonds into shares for three years, as requested by Harim Holdings.

If the conversion is postponed for three years, Harim Group’s stake in HMM will remain at 57.9 percent, allowing the group to receive an annual dividend of 289.5 billion won ($219.32 million).

Given that the initially expected annual dividend is 194.5 billion won for a 38.9 percent stake, Harim Holdings would receive an additional 285 billion won for three years.

Dongwon Group argues that it would have increased the acquisition price by at least 285 billion won if the condition had been presented from the beginning.

Ahead of the bidding, the KDB and KOBC sent out a draft stock purchase agreement containing their requirements to the major bidders, including Dongwon Group and the Harim consortium, and asked the bidders to present their demands.

This was a mark-up in the merger and acquisition process.

Dongwon Group responded that it would accept all of the sellers’ demands, while Harim Holdings called for a three-year delay in the conversion of the perpetual bonds and an exemption of restrictions on the disposal of JKL Partners’ shares.

Dongwon Group opposed the idea, saying that it would shake the foundation of the sale process and stir up controversy over fairness.

“It is only a normal procedure, and we are not necessarily insisting on having the sellers accept the provision that Dongwon is taking issue with,” the Harim consortium said. “If we are selected as the preferred bidder, we will have room to make concessions while comprehensively reviewing all the agreement terms.”

By Kang Doo-soon, Oh Dae-seok, and Choi Jieun

[ⓒ Pulse by Maeil Business News Korea & mk.co.kr, All rights reserved]