Chinese container shippers to merge
COSCO to buy rival OOIL in $6.3bn deal
SHANGHAI/HONG KONG: COSCO Shipping Holdings Co Ltd saw its stock climb yesterday after bidding US$6.3 billion for a Hong Kong peer, a deal that would see it become the world’s third-biggest container shipper and underline China’s supplychain ambitions.
The offer for Orient Overseas International Ltd (OOIL) comes as China’s government pushes to raise the country’s profile in global shipping, which dovetails with its “Belt and Road’’ initiative aimed at increasing China’s influence over distribution from Asia to Europe.
Beijing merged two shippers last year to form COSCO Shipping which, after the latest deal, will rise from fourth to rank only behind Denmark’s Maersk Line and Switzerland’s Mediterranean Shipping Co (MSC).
The enlarged company will operate more than 400 vessels with capacity exceeding 2.9 million twenty-foot equivalent units (TEUs), including order book.
“This is negative for Maersk and MSC,” said Corrine Png, chief executive of Singapore-based transport stock researcher Crucial Perspective.
A deal would make the Chinese shipper a “tougher competitor to deal with on the major trade lanes.”
State-backed COSCO Shipping on Sunday offered to buy each OOIL share at a 31.1% premium to their Friday close.
A suitor’s stock often falls after making a bid, but COSCO Shipping’s Hong Konglisted shares rose as much as 6% yesterday to their highest price in almost two years. OOIL stock rose as per usual for a target but at 20%, it was short of the offer price.
Png said some investors might feel OOIL would be selling too soon after the container industry began to recover from a prolonged slowdown, or that the deal may not pass anti-trust regulators.
“This transaction is a sweeter deal for COSCO than for OOIL’s shareholders,” she said. “OOIL could boost COSCO’s recurring profit by 50% in the next two to three years.”
The deal comes as Hong Kong’s
transport hub status dims. Its fortunes soared with the Pearl River Delta export boom of the 1990s, but its once worldleading port now languishes in fifth place by throughput, behind the mainland ports of Shanghai and Shenzhen.
COSCO said it would to keep OOIL’s global headquarters in Hong Kong but analysts said the city’s port would still be affected by its takeover.
“COSCO also has (port) investments in
Guangzhou,” said Han Ning, China director for Drewry Shipping Consultants, referring to the nearby Chinese city whose port competes with Hong Kong for Pearl River Delta traffic.
“So if COSCO is looking at what should be its hub for the Pearl River Delta, it will look to strike a balance between Guangzhou and Hong Kong.”
OOIL commands just under 3% of the global container shipping market and has
significant exposure to the US market.
“After the deal, COSCO Shipping can expect a US market share of 18% from 11-12% currently,’’ said COSCO general manager Zunwu Xu at a news conference yesterday.
The acquisition would also strengthen COSCO Shipping’s position in the port business, Xu said.
“The merger would be complementary as OOIL is strong in Transpacific and
Intra-Asia trade, and COSCO has strong China domestic trade,” said Samson Lo, head of Asia mergers-and-acquisitions at UBS, which is advising COSCO Shipping.
“The terminals and logistics businesses of OOIL can bring further synergies to COSCO as well.”
COSCO Shipping is making its offer with Shanghai International Port Group Co Ltd. The shipping line said it would finance the deal with a bridge loan.