Pan Ocean, a South Korean bulk-carrier operator, experienced a significant surge in its shares after a consortium led by its parent company decided to withdraw its bid for the struggling container-shipping company HMM. The stock rose by as much as 28% to 4,580 won ($3.45) during early Wednesday trade, marking its sharpest daily gain in nearly four years. This performance outpaced the benchmark Kospi's 1.4% increase, according to FactSet.
The rally was prompted by an announcement from the main creditor for HMM, Korea Development Bank (KDB), stating that negotiations to sell the container shipper to preferred bidder Harim Group had broken down after seven weeks. KDB did not disclose the specific reasons for the breakdown. This turn of events could potentially benefit Pan Ocean in terms of valuation, as it is no longer under pressure to assist its parent company in raising funds worth between KRW2 trillion and KRW3 trillion for a deal valued at KRW6.4 trillion.
Since the acquisition talks commenced in mid-December, Pan Ocean's shares had experienced a decline of over 20%, primarily due to concerns in the market about the potential negative impact on valuation resulting from the introduction of a significant number of new shares into the equities market. According to NH Investment & Securities analyst Y.S. Jung, the breakdown in negotiations removes this concern and allows Pan Ocean to focus on its own financial stability.
Nomura analyst Eon Hwang highlighted that Pan Ocean's planned new rights issue of KRW2.5 trillion to support the acquisition deal could have led to a 64% dilution of the company's stock. However, with the bid now withdrawn, this outcome has been avoided.
