China’s ambitions in the global shipping industry have been underlined by a $6.3bn deal by a state-owned company to take over a Hong Kong rival, creating a bigger force to compete with the leading European container lines.
Cosco Shipping has agreed to buy Orient Overseas International of Hong Kong in an all-cash acquisition, the latest in a wave of M&A in container shipping, as the battered industry navigates its way to sustainable profitability.
The takeover, announced on Sunday between two members of the Ocean Alliance grouping of container lines, creates a potentially stronger Asian competitor to the 2M Alliance of Denmark’s Maersk Line and Switzerland’s Mediterranean Shipping Company, operators of the two largest container fleets.
Already the world’s biggest exporter of manufactured goods, China wants to deepen its influence in the shipping industry through Cosco, which was formed from the merger of two state-owned predecessors and has acquired ports in Spain and Greece as part of a broader acquisition spree.
The combined Cosco-OOIL group will operate more than 400 vessels and operate the world’s third largest container ship fleet, according to Alphaliner, the shipping data provider.
There have been eight M&A deals in the industry in the past four years, with the market now bifurcated between big players going aggressively after market share in the premier routes and companies falling into a second-tier level, such as OOIL, according to Basil Karatzas, chief executive of Karatzas Marine Advisors.
“The acquisition of Orient Overseas further strengthens Cosco’s market position and gives it the critical mass to compete with the very top players in every respect,” he said, adding that “there is little doubt that Cosco likely will not be done and is likely to go after more targets in the near future”.
The offer of HK$78.67 a share is at a 31 per cent premium to OOIL’s closing price on Friday and has already been accepted by the controlling shareholder, CC Tung, whose family owns a 68.7 per cent stake.
OOIL’s share price popped 19 per cent on Monday to HK$71.45.
OOIL was established in 1950 by Mr. Tung’s father, CY Tung, after fleeing from communism in mainland China. Once one of the sector’s most profitable operators, it has struggled to recover fully from the sharp downturn that hit the industry in the global recession of 2008.
After CY Tung’s death in 1982, the line had to be rescued by a consortium including mainland Chinese banks. The relationship with the mainland was close enough for CH Tung, CC Tung’s brother and predecessor as chief executive, to be appointed Hong Kong’s first chief executive under Chinese rule in 1997.
If the deal obtains regulatory approval, Cosco will hold 90.1 per cent of the enlarged group, while its partner in the offer, Shanghai International Port Group, will hold the remainder.
By Courtesy of FT