Drewry stokes M&A speculation, calling OOCL ‘a perfect bride-to-be’

Drewry’s investment research arm said it believes CMA CGM of France is best positioned among the major carriers to be a perfect suitor for Orient Overseas (International) Limited, the parent company of Hong Kong-Based OOCL.    Drewry Financial Research Services, the investment research arm of London-based shipping research and consulting firm Drewry, is further stoking speculation that Hong Kong-based container carrier Orient Overseas Container Line (OOCL) might be an acquisition target.
   “There has been a lot of speculation in recent months in both the industry and financial circles on who’s next in line to be acquired,” Drewry said. “Orient Overseas (International) Limited (OOIL) has been the talk of the town and the stock has been in a strong upward trajectory in recent weeks.” OOIL is the parent company of OOCL.
   It’s not clear if that upward movement is because of merger and acquisition speculation or an expectation that strengthening freight rates will improve the financial outlook for container carriers.
   Drewry said it believes, “A merger is likely in the near future. The key questions for us are: At what price would OOIL’s shareholders be willing to sell? Would there be any willing buyers and, if yes, who? With freight markets improving, should OOIL wait for a better price?”
   While it believes “OOIL operates one of the world’s well-run container carriers with a long history of being profitable, even in a very challenging environment” and is financially sound, Drewry noted that “in a market where size is critical, lack of scale has become its nemesis. This is not only because higher efficiency, bigger ships as well as economies of scale are necessary to shore up competitiveness and earnings, but also because it becomes easier for container shipping lines that grow inorganically to exploit precious cost synergies.”
   OOCL is a strong player in the intra-Asia trade, where it derived 35 percent of its revenues in the first nine months of 2016, and in the transpacific, where 37 percent of its revenues came from during this time period. Only 17 percent came from the Asia-Europe trade, and 11 percent from the transatlantic.
   Drewry said it believes CMA CGM is “best positioned among major carriers to be a perfect suitor for OOIL.”
   Drewry believes CMA CGM still has an appetite for more acquisitions. Despite its heavy debt burden, CMA CGM reportedly placed a bid for Hamburg Süd prior to the German carrier reaching a merger deal with Maersk late last year, Drewry said.
   In addition, Drewry said it believes the likelihood of an Asian carrier bidding for OOIL is a distant possibility, noting that Evergreen is an unlikely bidder and COSCO is still emerging from its merger with China Shipping Container Lines.
   However, COSCO this week announced an enormous finance deal with China Development Bank.
   While such speculation about the future of OOCL is interesting, any decision about the future of the company is firmly in the hands of the family of chief executive C.C. Tung, who holds a voting right for 68.7 percent of OOIL’s stock, according to its annual report last year.
   OOCL did not immediately respond to a request for comment, and CMA CGM said, “As a matter of company policy, we do not comment on rumors or speculation.”