HD Hyundai in talks to buy back Korean ship parts maker

Key Takeaways:

• HD Hyundai is in talks to reacquire Hyundai Hyms to boost productivity and strengthen supply chains.
• Hyundai Hyms’ market value has surged over sixfold since 2019, complicating the deal.
• J& Private Equity holds a 53.06% stake in Hyundai Hyms, with its lockup period expired.
• Hyundai Hyms generates 94% of its sales from HD Hyundai’s subsidiaries.
• Rising valuations in the shipbuilding sector pose financial hurdles for the acquisition.

HD Hyundai Seeks to Reclaim Hyundai Hyms

HD Hyundai Co., the world’s second-largest shipbuilder, is in negotiations to buy back Hyundai Hyms Co., a South Korean ship parts manufacturer. The move is part of HD Hyundai’s strategy to improve productivity and solidify its supply chains amid a global shipbuilding boom.

Background of the Initial Sale

In 2019, HD Hyundai sold a 75% stake in Hyundai Hyms to J& Private Equity for 97.5 billion won ($67.2 million). This decision was made as HD Hyundai attempted to acquire Daewoo Shipbuilding & Marine Engineering Co., now known as Hanwha Ocean Co. However, the takeover was unsuccessful after being vetoed by the European Commission in 2022.

Strategic Rationale for Reacquisition

The potential reacquisition of Hyundai Hyms is seen as a strategic move to enhance HD Hyundai’s operational efficiency. Hyundai Hyms specializes in manufacturing curved blocks, crucial components in shipbuilding. Owning Hyundai Hyms would allow HD Hyundai to streamline its production process and secure a more reliable supply of essential parts.

Financial Challenges Due to Increased Valuation

Since the initial sale, Hyundai Hyms’ market capitalization has soared to 667.9 billion won as of Monday, a significant increase from approximately 100 billion won in 2019. This surge is attributed to the recent boom in the global shipbuilding industry.

An industry source noted, “Hyundai Hyms’ value has risen substantially, and this makes HD Hyundai hesitant to proceed with the acquisition at the current price.”

Impressive Market Performance of Hyundai Hyms

Hyundai Hyms has demonstrated strong financial performance, with its operating profit rising by 53% to 16.9 billion won in the first three quarters of 2024 compared to the previous year. Sales have also increased by 24% to 166.8 billion won during the same period.

Interdependence Between the Companies

The close relationship between the two companies is underscored by the fact that Hyundai Hyms generates 94% of its sales from HD Hyundai’s shipbuilding subsidiaries, including HD Hyundai Heavy Industries Co. and HD Hyundai Samho Co.

Potential Obstacles and Future Outlook

Negotiations may face difficulties due to the inflated valuation of Hyundai Hyms. “Hyundai Hyms may be sold to a third party if the negotiation drags on,” remarked a brokerage industry source. While HD Hyundai is considered a preferred bidder, there is no obligation for J& Private Equity to sell the stake exclusively to them.

Conclusion

The outcome of these negotiations will have significant implications for HD Hyundai’s strategic position in the shipbuilding industry. Acquiring Hyundai Hyms could provide a competitive edge, but the high cost presents a substantial challenge. As the global shipbuilding sector continues to thrive, HD Hyundai must weigh the benefits against the financial burdens of reacquiring its former subsidiary.