Cosco preparing bid worth more than $4 billion as shipping companies explore new combinations
Chinese conglomerate Cosco Group is in talks to acquire smaller rival Orient Overseas Container Line Co., people familiar with the matter said, as shipping companies explore new combinations to battle an industry slump.
State-owned Cosco is in the process of preparing a bid valued at more than $4 billion for its Hong Kong-based competitor, one of the people said. The two firms are members of a shipping alliance that is set to begin operating in April.
Orient Overseas declined to comment on whether it is in talks with Cosco or any other suitor, but a person familiar with the matter said the discussions “have been going on for months.”
Container shipping, which moves the world’s majority of manufactured goods, is an estimated $1 trillion a year industry, but individual players are struggling to stay profitable in one of the most severe down cycles in 30 years.
Cosco, based in Beijing, stands to benefit from Orient Overseas’s sales team and young fleet, which data provider VesselsValue estimates is worth around $1.5 billion. Cosco merged its container-shipping assets with China Shipping (Group) in December 2015 to form the world’s fourth-biggest player. Last week, it secured a $26 billion multiyear financing deal with China Development Bank, giving it plenty of cash to increase its footprint.
Orient Overseas is the world’s ninth-biggest liner with a 2.8% market share, but analysts say it is too small to compete against its much bigger rivals. The company is 69%-owned by Hong Kong’s Tung family, with the remainder held by other investors.
Shares of Orient Overseas’s listed parent, Orient Overseas International Ltd., have risen close to 30% over the past month in Hong Kong on expectations of a deal.
Shipping executives say that CMA CGM and Evergreen Marine are also potential buyers, but people familiar with the matter say Cosco has made more progress and is the leading suitor.
Over the past two years, liners roughly the size of Orient Overseas have merged or been swallowed up by bigger players. CMA CGM bought Neptune Orient Lines, Hapag-Lloyd AG merged with United Arab Shipping Co. and Maersk Line bought Hamburg Süd. Orient Overseas and Cosco are part of the Ocean Alliance announced last year and that is set to kick off operations over the next four months.
The grouping also includes France’s CMA CGM, the world’s third-biggest container operator, and Taipei-based Evergreen Marine.
The Tung family has a long relationship with Beijing. Tung Chee-hwa, Orient Overseas’s former top executive, was appointed Hong Kong’s first governor after it was handed to China in 1997.
His son, Andy Tung, is the company’s current chief executive. The Chinese government helped the company stay afloat in 1985 when it was close to going bankrupt.
Groups such as the Ocean Alliance have helped individual shipping companies save millions a year in operational costs by sharing ships, networks and port calls.
But smaller ones such as Orient Overseas have little say and benefit the least, according to shipping executives, as alliance members compete with each other for cargo.
“The alliance is a stepping stone for stronger relationships like buyouts and mergers,” said one of the people familiar with the talks.
Source: Wall Street Journal (LF)
Source: Wall Street Journal