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American ShipperShippingTrade and Compliance

CMA CGM to acquire NOL for $2.4b, bring APL into Ocean3 Alliance

The deal would merge the world’s third largest and 12th largest container carriers, creating a combined company with 563 ships with capacity of about 2.4 million TEUs and annual revenues of $22 billion.

   Ocean carrier CMA CGM will acquire Neptune Orient Lines, the parent of APL, in an all cash deal worth about $2.4 billion, according to a joint statement from the companies.
   The companies said the deal, which would combine the world’s third largest and 12th largest container carriers, is still subject to antitrust approvals in the U.S., China, and European Union. A tie-up between CMA CGM and APL would create a combined company with 563 ships with capacity of about 2.4 million TEUs and annual revenues of $22 billion.
   CMA CGM, based in Marseilles, France, said it has a leading position on the Asia-Europe, Asia-Mediterranean, Africa and Latin America routes, while Singapore-based APL is strong along the transpacific, intra-Asia and Indian subcontinent shipping routes.
   Ng Yat Chung, the chief executive officer of NOL, said CMA CGM intends to maintain the APL brand, formerly American President Lines.
   Rodolphe Saadé, vice-chairman of CMA CGM, said the company intends to make APL part of the Ocean3 Alliance it operates in with China Shipping Container Line and United Arab Shipping Company on the major east-west trade routes.
   According to ocean carrier schedule and capacity database BlueWater Reporting, the addition of APL to the Ocean3 Alliance of CMA CGM, China Shipping Container Line and United Arab Shipping Co. would increase Ocean3’s share of the transpacific market to 17 percent and share of the Asia-North Europe market to 22 percent. The charts below, built using data from BlueWater Reporting’s Carrier Trade Route Deployment application compare the market share of major carrier alliances by weekly deployed capacity in the transpacific and Asia-Europe trades.

   It is still unclear if the merger of China Shipping and COSCO goes forward if China Shipping and COSCO would both become members of Ocean 3 or join a different consortium. COSCO is a member of the CKYHE alliance currently.
   CMA CGM noted that on an individual bases, the merger will boost its market share so the combined carrier will go from being the fourth largest carrier to number one in the transpacific. It will remain the third largest in the Far East-Europe trade, and fourth largest in the transatlantic, where APL currently does not deploy any capacity. In the intra-Asia trade, CMA CGM said it will jump from being the seventh largest to the fourth largest container carrier. 
   “The enlarged entity will strengthen its position on strategic shipping routes, especially in key markets such as United States, Intra-Asia and Japan, and will boast a balanced trade portfolio. Following the transaction, the combined group would hold market shares from 7 percent to 19 percent on the routes on which it operates,” said CMA CGM.
   The company will remain the third largest container carrier behind Maersk and MSC, as illustrated by the chart below, which compares the overall operating fleet capacity of the merged CMA CGM/APL with that of other top ocean carriers.

   Once approvals from antitrust authorities are received, CMA CGM said it will launch an offer at a price of 1.3 Singapore dollars (92.56 U.S. cents) per share, which it noted represents a 49 percent premium to the price of NOL’s shares on July 16, the last trading day before media reports regarding a potential sale of NOL. Temasek, the Singapore government’s sovereign wealth fund and largest single shareholder of NOL (and its affiliates), are supporting the transaction and have irrevocably undertaken to tender all of their shares.
   CMA CGM said it will establish its regional head office in Singapore, which will reinforce Singapore’s leadership position in the shipping industry. The companies announced the deal at press conference at NOL’s headquarters in Singapore and Saadé said, “We understand the importance of the maritime industry to Singapore and we intend to build on it,” adding that CMA CGM will move a portion of its business to PSA’s terminals in Singapore from other regional hubs.
   “At a time when the shipping industry is facing strong headwinds, scale is more critical than ever to capitalize on synergies and capture growth opportunities wherever they arise,” said Saadé. He revealed during a press conference that the two companies had been discussing a possible merger for a year.
   “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,” added Ng. “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.
   “At this point in time, scale is all important. NOL, together with a lot of other mid-size carriers lack the scale to compete effectively, and I think for us to get to the scale that is required would require a great deal of additional capital investment in a challenging industry,” said Ng. “So therefore other than just looking at other options of continuing on our own, we have to consider as part of our business duties other options and I think one of the options is a combination with another player and we are pleased we have the opportunity to combine NOL with a top tier player like CMA CGM.”
   Ng said over the last few years NOL has been approached by numerous companies interested in acquiring the firm and chose CMA CGM both on the basis of value and “transaction certainty.”
   Today’s announcement is of a “pre-conditional voluntary general offer.” Ng said a firm offer is expected in June next year and that the deal might be completed by next August.
   Michel Sirat, chief financial officer at CMA CGM, said after the two companies are combined, up to $1 billion in assets will be sold and that these could include terminals, ships or containers that could come from either NOL or CMA CGM.  
   CMA CGM is a family-owned company, but in response to a question, Saadé said the company might consider an initial public share offering at some time in the future, though he said the company will have a lot on its plate before then in integrating the APL operations.
   CMA CGM has about 22,000 employees, and NOL 7,400 employees. Saadé said there will be some rationalization of staff as the two companies merge, but said it is too early to say how many staff will be reduced. CMA CGM has agreed to honor NOL severance packages if and when cuts are made, and said the company hopes to retain senior NOL management.
   “We are looking at growing our business, but at the same time because the market is getting difficult, and we expect the first half of 2016 to be difficult, we need to make sure that we drop our costs down and we rationalize whenever it is possible. But we have other ways to do so not just with headcount,” said Saadé.
   Asked if CMA CGM has any plans for other acquisitions, Saadé said, “There is always appetite, but I think our stomach will be full with APL. So we need to foucus and concentrate on integrating NOL because even if some say the price is low, we believe it is a very reasonable and significant price we are putting on the table so we need to be sure we are delivering synergies before we do anything.”
   Saadé also said CMA CGM will continue to offer U.S.-flag shipping services via APL and would like to grow that business.
   The transaction will be financed by a combination of available cash and bank financing provided by a syndicate of international banks, according to CMA CGM, and during the press conference it was noted that representatives from J.P. Morgan Chase, HSBC and BN Paribas were present at the event.

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Chris Dupin

Chris Dupin has written about trade and transportation and other business subjects for a variety of publications before joining American Shipper and Freightwaves.
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