Tuesday, December 8, 2015

New Container Shipping Line Deal Will Consolidate Position as World's Third Largest Freight Carrier

CMA CGM and NOL Combined Will Have Nearly Two and a Half Million TEU Capacity
Shipping News Feature
FRANCE – SINGAPORE – WORLDWIDE – French container giant, CMA CGM has made US$2.4 billion offer for Southeast Asian box freight line, Neptune Orient Lines (NOL) which, if granted approval from the usual authorities, will see what is currently the world’s third largest container shipping company gain a stronger presence in the transpacific trade routes. The combined freight operation would see a shipping line with a capacity nearing 2.5 million TEU. Both CMA CGM and the world’s largest box line, Maersk, originally expressed interest in a deal with NOL but, as we reported last month, the Danish giant’s ardour cooled and it withdrew from talks.

Upon the satisfaction of the pre-conditions, namely approvals from relevant antitrust authorities, CMA CGM will launch an offer at a price of SG$1.30 per share, which represents a 49% premium to NOL’s unaffected share price and a 33% premium to NOL’s 3 month volume-weighted average share price to July 16, 2015. The deal is expected to close in mid-2016. NOL has had some serious financial problems in the past and earlier this year, divested itself of APL Logistics. Commenting on this transaction, Rodolphe Saadé, Vice-Chairman of CMA CGM, said:

“This transaction will represent a significant milestone in the development of CMA CGM. Leveraging the complementary strengths of both companies, CMA CGM will further reinforce its position as a leader in global shipping with combined revenue of US$22 billion and 563 vessels. By bringing together the know-how of both teams, the enlarged group will be even better positioned to provide premium services to its customers across all markets.

“At a time when the shipping industry is facing strong headwinds, scale is more critical than ever to capitalise on synergies and capture growth opportunities wherever they arise. I firmly believe CMA CGM will enable NOL to address the industry’s new challenges. We recognise the strategic importance of Singapore as a key hub for the maritime industry and we are committed to reinforcing its regional leadership.”

Created in 1978 by Jacques Saadé, CMA CGM is the world’s third largest container shipping firm, with 469 vessels and a global market share of 8.8%. In 2014, the Group handled over 12 million TEUs and generated US$16.74 billion in revenues. A founding member of the Ocean Three Alliance with UASC and CSCL, the French firm is present across 160 countries, with 22,000 employees in 655 offices, and has a current fleet capacity of 1.78 million TEUs.

NOL is a Singapore based shipping company operating under the American President Lines (APL) brand. In 2014, the company’s revenues reached US$7.04 billion. Currently, NOL has more than 7,400 employees in 180 offices across more than 80 countries and operates 94 vessels, representing 618,000 TEUs in fleet capacity. Tan Chong Lee, Head Portfolio Management at Temasek, NOL's current majority shareholder, said:

“We are supportive of this transaction as it presents NOL with an opportunity to join a leading player with an extensive global presence and solid operational track record. The combination of NOL and CMA CGM will create a leading shipping company that delivers reliable and efficient service to its customers. Their complementary strengths will yield mutually beneficial results. We also note and welcome the commitment of CMA CGM to enhance Singapore’s position as a key maritime hub and grow Singapore’s container throughput volumes.”

This acquisition would enable CMA CGM to reinforce its position in the container shipping industry, and achieve capacity of 2,399,000 TEUs and combined fleet of 563 vessels, an increased market share of approximately 11.5% (vs 8.8% for CMA CGM and 2.7% for NOL), and a combined turnover of US$22 billion.

CMA CGM has a leading position on the Asia-Europe, Asia-Mediterranean, Africa and Latin America routes, whilst APL is strong along the Transpacific, Intra-Asia and Indian subcontinent shipping routes. The enlarged entity should be able to strengthen its position on strategic shipping routes, especially in key markets such as United States, Intra-Asia and Japan, and should boast a balanced trade portfolio. Following the transaction, the combined group would hold market shares from 7% to 19% on the routes on which it operates. Ng Yat Chung, CEO of NOL, said:

“The combined market presence delivered by the transaction would achieve the scale needed to enhance competitiveness for NOL’s operations and offer a clear and sustainable long term direction for the combined entity. The transaction would enable NOL to grow as part of a larger entity with the resources of the world’s third largest container shipping line.”

One key reason that the French group have an interest in NOL is surely that as APL, American President Lines, the Singapore group has access to lucrative US government contracts. Despite the country’s well deserved protectionist reputation when it comes to shipping, NOL’s American flagged vessels are already accepted for the carriage of both military and humanitarian cargo and a change of nationality of the line’s ownership to another friendly nation would presumably present no problems.