Hyundai Might Become Third Member of 2M Alliance!

Hyundai to Join 2M?

Hyundai Merchant Marine (HMM) stock just shot up by the maximum daily allowable amount.

This must make debtors of the nearly $5-billion-in-debt shipping line feel good right about now. In a recent debt restructuring deal, HMM bondholders traded debt for stock on over half of applicable bonds.

Bloomberg reports:

Hyundai Merchant Marine Co. gained the most in more than two decades in Seoul trading on optimism a restructuring plan for South Korea’s second-biggest container liner will get a boost as it seeks to join the world’s largest shipping alliance.

… Shares of Hyundai Merchant advanced by the daily limit of 30 percent, the most since October 1995…

Why such sudden optimism on the outlook of a company that just weeks ago seemed to be headed for court receivership? It’s all in the final words of the first sentence in the above quote.

HMM has entered talks to join the world’s biggest and most exclusive carrier alliance.

The carrier alliance it seeks to join is not the world’s biggest in terms of number of members. It actually has only two: Maersk and Mediterranean Shipping Co. (MSC). Since Maersk and MSC are the number one and two container lines by capacity, respectively, their 2M Alliance stands head and shoulders above the rest of the alliances.

A new alliance, called THE Alliance, between the shipping lines Hapag-Lloyd, Hanjin Shipping, Mitsui OSK Lines, NYK Line, K Line, and Yang Ming Marine Transport looks to contest 2M’s dominance.

Joining an alliance is one of the three conditions HMM needs to meet in order to stay out of receivership. HMM managed the debt-for-equity deal mentioned above and getting charter fees reduced to meet the first two requirements, and it was expected that HMM would join THE Alliance.

It came as a surprise to many that HMM ended negotiations with THE Alliance and has entered negotiations with Maersk and MSC to join 2M.

Of course, if HMM can manage to join the 2M Alliance, then that would be the optimum alliance of which to be a part. No one questions why HMM would want to join 2M, but some wonder what would cause Maersk and MSC to choose this struggling container line as the one they would allow in.

The Wall Street Journal published a story about HMM entering talks to join the 2M, which contains a quote that addresses why 2M might be interested in HMM:

“2M has wanted to enhance its influence in the Asian region. And we want to raise our presence in Asia-U.S. routes. Both sides will benefit from a successful deal,” Hyundai Merchant said Thursday.

That quote, of course, comes from HMM rather than 2M’s Maersk or MSC. However, that does not negate such a value HMM might bring to the table. With new rival THE Alliance’s size, it is not surprising 2M would want to bulk up a little more and increase its advantage.

Still, negotiations for HMM to join the 2M alliance have just begun and by no means guarantee the new membership will actually be granted. A merger between HMM and Hanjin is also still possible, and that could add a complication to HMM becoming the third member of the 2M Alliance as well.