By John Gallagher,
Money & Investing Writer
After months of searching, Singapore based shipping company Neptune Orient Lines (NOL) has finally secured a buyer, French shipping giant CMA CGM.
CMA CGM is the third largest container-shipping operator by capacity and acquiring NOL will provide them with a stronger shipping presence in Asia.
Reuters reports that CMA CGM’s global ranking wouldn’t change, but it would boost their market share to 12 percent which is ahead of the global market leader AP Moeller-Maersk.
The Wall Street Journal reports that CMA CGM is in talks with banks to finance the $5 billion acquisition.
NOL has a market value of $2.2 billion and has about $3 billion in debt that would be purchased as well.
Some of the banks in contention are French bank BNP Paribas, HSBC, and J.P. Morgan.
Temasek Holdings, Singapore’s sovereign-wealth fund owns a 65 percent stake in Neptune. CMA CGM is currently negotiating with Temasek for their stake in the company.
In Singapore, any company buying more than 30 percent of another company must make a bid for the entire company.
After a deal is negotiated with Temasek, CMA CGM will make an offer to buy all of NOL. NOL handles about 3 percent of global container volumes.
This is just the latest of many large scale mergers and acquisitions deals this year.
This year there has been $4.31 trillion of M&A deals, second to only 2007 in inflation adjusted dollars.
The low interest rate environment has made it cheaper to borrow money to finance these large purchases.
Despite the recent merger activity, the shipping industry is an unlikely player in the M&A world. This is attributed to the types of ownership.
Shipping companies are commonly owned by sovereign wealth funds, who are longer term investors who can afford to hold onto a company through the ups and downs of the business cycle.
NOL has been actively trying to sell its shipping business after selling its profitable logistics business for $1.2 billion in May. CMA CGM is willing to pay a premium as competition is brewing in China where two state-owned shipping companies are currently in talks to merge.
The entire shipping industry has been struggling lately.
Slowing global growth, a decline in commodity prices, and overcapacity have driven down prices and hurt profits for maritime companies.
Despite NOL’s recent inability to turn a profit, losing $96 million in the third quarter, their share price has risen over 40 percent this year while the Singapore benchmark index has double digit losses. There have been different tactics to deal with the drop in prices, but strategic alliances have been formed to maximize efficiency.
Maersk is laying off thousands of workers in order to cut costs, but plans to expand their fleet.
Competitor Maersk was also in contention for the takeover as Neptune’s ships, routes and infrastructure in Asia would bolster the strength of both companies.
CMA CGM has a fleet of 470 ships and would add 94 vessels if the merger goes through. Their trade routes include Asia-Europe, Intra-Asia, Latin-America, Trans-Atlantic, and Trans-Pacific per NOL’s website.
They also have over 4,600 employees which would likely join CMA CGM’s workforce of 22,000.
A version of this article appeared in the Tuesday, December 8th print edition.
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