China’s Cosco bids $6.3B for ri­val

Ori­ent Over­seas deal cre­ates Pa­cific’s largest box ship­per


China’s state-owned Cosco Ship­ping Hold­ings Co. has bid $6.3 bil­lion to buy Ori­ent Over­seas In­ter­na­tional Ltd., a move that would cre­ate the big­gest ship­ping com­pany mov­ing boxes to the North Amer­i­can con­ti­nent from Asia.

The com­bined ship­ping gi­ant would beat Copen­hagen­based A. P. Moller- Maersk A/S and France’s CMA CGM SA in to­tal North Amer­i­can ship­ments. The takeover, an­nounced Sun­day in Hong Kong, would also cre­ate the big­gest sea-box car­rier through the Pa­cific Ocean.

The con­sol­i­da­tion may help raise con­tainer rates on the Amer­i­cas route — the sec­ond-busiest in the world — a crit­i­cal piece in the sur­vival of the ship­ping in­dus­try that has been bat­tling slump­ing charges and over­ca­pac­ity. Ear­lier this year, Maersk and Hyundai Mer­chant Marine Co. said that they man­aged to get higher fees from cus­tomers on their an­nual rate-ne­go­ti­a­tion talks on the trans-Pa­cific routes. Mov­ing goods to Europe from Asia is the world’s big­gest ship­ping trade route.

The Cosco-Ori­ent Over­seas com­bi­na­tion would have the ca­pac­ity to move a weekly av­er­age of 77,208 con­tain­ers be­tween Asia and North Amer­ica, based on end-May data from Al­pha­liner, a ship­ping data provider. In the Asi­aEurope trade lane, the com­bi­na­tion will be­come only the third big­gest.

Shares of Ori­ent Over­seas surged 20 per­cent to about $9.22, on Mon­day in Hong Kong, the big­gest gain in eight years. Cosco shares jumped 5.4 per­cent af­ter Fri­day’s 11 per­cent ad­vance.

The main­land ship­ping com­pany will re­ceive bridge loans from Bank of China to help fund the pur­chase, Chief Fi­nan­cial Of­fi­cer Deng

Huangjun told re­porters in Hong Kong on Mon­day. Of­fi­cials also said Cosco has no plans for fur­ther ac­qui­si­tions and has no time­line on when it ex­pects to get all the reg­u­la­tory ap­provals needed to com­plete the trans­ac­tion.

“There’s a very good chance we will get all the reg­u­la­tory ap­provals be­cause we al­ways com­ply with all rules,” Cosco’s Ex­ec­u­tive Di­rec­tor Xu Zunwu said at a news con­fer­ence in the city.

Cosco’s of­fer to buy Ori­ent Over­seas was a 49 per­cent pre­mium, based on the av­er­age 20-day trad­ing price be­fore the an­nounce­ment. That is the big­gest for a ma­jor con­tain­er­ship­ping deal since 1997, the year Hong Kong passed from Bri­tish hands to China. In the same year, Sin­ga­pore’s Nep­tune Ori­ent Lines Ltd. bought APL Ltd. for $833 mil­lion, of­fer­ing a pre­mium of 57 per­cent.

The con­trol­ling share­hold­ers of Ori­ent Over­seas have ac­cepted Cosco’s of­fer at $10.06 a share. The fam­ily of Tung Chee-hwa, the first chief ex­ec­u­tive of Hong Kong, holds about 69 per­cent of the ship­ping line.

The deal was an­nounced a lit­tle more than a week af­ter China’s Pres­i­dent Xi Jin­ping vis­ited Hong Kong as the for­mer Bri­tish colony marked the 20th an­niver­sary of the han­dover. Tung, cur­rently a vice chair­man of China’s top po­lit­i­cal ad­vi­sory body, Chi­nese Peo­ple’s Po­lit­i­cal Con­sul­ta­tive Con­fer­ence, was hand-picked by China in 1997 for the top job in the fi­nan­cial hub and has been ad­vis­ing the cen­tral lead­er­ship on for­eign poli­cies es­pe­cially China-U.S. re­la­tions.

The pur­chase could also stoke con­cerns the city’s role as a ma­jor ship­ping and fi­nan­cial hub is di­min­ish­ing amid fur­ther in­roads by state-owned com­pa­nies and the rise of other cen­ters on the main­land such as Shen­zhen, Guangzhou and Shang­hai.

“Rather than be­ing one shiny spot, Hong Kong is now more seen as part of the Pearl River delta,” said Yu Zhanfu, a Bei­jing-based prin­ci­pal at Roland Berger Strat­egy Con­sul­tants. “For the com­pa­nies be­ing ac­quired, there’s more to gain than to lose. They will ben­e­fit from hav­ing closer ac­cess to the broader mar­ket in the main­land.” Main­land Chi­nese com­pa­nies can also learn from the city-based firms that have thrived in a mar­ket-based en­vi­ron­ment, he said.

China and the U.S. have been ne­go­ti­at­ing over trade as Pres­i­dent Don­ald Trump pushes the Asian na­tion to cede greater ac­cess to Amer­i­can ex­porters to help ad­dress a $347 bil­lion deficit. The so-called 100-day talks sched­uled to end July 16 have been marred by North Korea’s test­ing of an in­ter­con­ti­nen­tal bal­lis­tic mis­sile last week.

Global trade, mea­sured by vol­ume of goods and ser­vices, is set to ex­pand 3.8 per­cent this year and ac­cel­er­ate to 3.9 per­cent in 2018, ac­cord­ing to pro­jec­tions by the In­ter­na­tional Mon­e­tary Fund. Global trade prob­a­bly rose 2.2 per­cent last year, the slow­est pace since 2009.

Cosco cur­rently has a mar­ket share of 8.4 per­cent while Ori­ent Over­seas has 3.2 per­cent, ac­cord­ing to Al­pha­liner. Their com­bined 11.6 per­cent share would make the merged en­tity the third-big­gest con­tainer-ship­ping com­pany, over­tak­ing CMA CGM with 11.2 per­cent, ac­cord­ing to the ship­ping data provider. The en­larged com­pany will op­er­ate more than 400 ves­sels with ca­pac­ity ex­ceed­ing 2.9 mil­lion twenty-foot equiv­a­lent units, in­clud­ing or­der book.


Con­tain­ers are loaded onto a Cosco Ship­ping Hold­ings Co. con­tainer ship at a port in Qing­dao in eastern China’s Shan­dong Prov­ince in this file photo. Cosco has bid $6.3 bil­lion to buy com­pet­ing ship­ping com­pany Ori­ent Over­seas In­ter­na­tional Ltd.

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