Months of firm denials by Orient Overseas Container Line (OOCL) that it was involved in any sale talks ended with the weekend announcement that COSCO Shipping Holdings and Shanghai International Port Group had made an enormous USD6.3 billion offer for the Hong Kong-listed carrier.
The offer price of HKD78.67 per share (USD10.07) was a stunning 31% premium on the Hong Kong Exchange closing price on Friday and supports earlier reports that the Tung-family controlled OOCL had been holding discussions with COSCO and was waiting on a better price.
It was obviously a strategy that worked. At USD6.3 billion, the offer is way above that paid for other global carriers that have been acquired in the wave of consolidation that began with the collapse of Hanjin Shipping.
Maersk Group bought Hamburg Sud for USD4 billion and CMA CGM paid USD2.5 billion for Neptune Orient Lines and its APL liner subsidiary.
The OOCL acquisition will need to be cleared by global regulators and that will take several months, but if it goes ahead the combined carrier will have a fleet of more than 400 ships, totalling a capacity of 2.9 million teu including their orderbooks. Together, COSCO and OOCL would operate the third-largest mega-ship fleet and be the second-largest mover of US containerised goods, according to an analysis of PIERS data and the IHS Markit orderbook.
Under the deal, Orient Overseas International Ltd (OOIL) would keep its Hong Kong corporate headquarters and the independent share listing. It would also put off any headcount reductions at OOIL for at least 24 months, COSCO
said in a statement. COSCO acknowledged the separate and distinct culture that has led OOCL to become one of the industry’s best performing and highest regarded carriers in the eyes of cargo owners, and clearly indicated that was an important part of the value it was acquiring.
“We respect OOIL’s management team and its expertise, not to mention its people, brand, and culture,” said Wan Min, chairman of COSCO Shipping Holdings.
However, customers of the Hong Kong-based carrier were not that impressed. “The soup is getting even thinner,” is how an Asia-Europe cargo shipper described the takeover bid. “There are too few options now, and if the carriers in the alliances get their act together, the shippers are in for a tough ride for the next couple of years,” the shipper said.
Hanjin’s demise and the subsequent consolidation forced a complete redrawing of the alliance structure that was reduced from four vessel sharing agreements to three – 2M-plus Hyundai Merchant Marine, THE Alliance,
and the Ocean Alliance. COSCO and OOCL are both members of the Ocean Alliance.
AlixPartners’ Lim Lian Hoon said shipper choices were being narrowed steadily in the march towards consolidation, but one of the more interesting implications of a COSCO-OOCL tie-up is that the Ocean Alliance will become much easier to align.
“It was four liners but now two of them are very much larger than Evergreen. Structurally it will resemble the 2M-plus HMM alliance,” he said. “So if both these carriers are aligned internally it lays the foundations for increasing the probability of liners curbing their individual market share ambitions. That in turn reduces the probability of rates falling rapidly.”
From next year about 70% of world container trade will be carried by just six container lines – Maersk Line, MSC, COSCO-OOCL, CMA CGM, Hapag-Lloyd-UASC, and One Network Express (MOL, ‘K’ Line, NYK).