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American Shipper

Maersk bids $3 billion for P&O Nedlloyd

Maersk bids $3 billion for P&O Nedlloyd

   A.P. Moller-Maersk said today it intends to bid 2.3 billion euros ($3 billion) for Royal P&O Nedlloyd, the parent company of P&O Nedlloyd, in an all-cash friendly takeover that is backed by the management of Royal P&O Nedlloyd.

   The large Danish shipping and retail conglomerate, which already owns Maersk Sealand, the largest containership operator, wants to make a cash offer of 57 euros ($73) per ordinary share for Royal P&O Nedlloyd, 40.6 percent more than the company’s ex-dividend closing share price of May 9, the date prior to the confirmation that a takeover was discussed.

   Netherlands-based Royal P&O Nedlloyd’s board of directors supports the intended offer and will recommend that shareholders accept the intended bid, the company said.

   Peninsular & Oriental Steam Navigation Co., Royal P&O Nedlloyd’s largest shareholder, also said today it intends to accept the A.P. Moller-Maersk bid. If completed, the sale of P&O’s 25-percent stake in Royal P&O Nedlloyd at 57 euros per share would raise about 579 million euros ($745 million) in cash and produce a large capital gain for the London-based port group.

   A.P. Moller-Maersk and Royal P&O Nedlloyd expect to reach definitive agreement on the intended offer over the next weeks. An offer memorandum should be issued in June, an extraordinary general meeting of shareholders of P&O Nedlloyd is planned for July, and the acceptance period of the bid is to close in July or August at the earliest.

   However, completion of the bid is subject to merger clearance filings, including with the European Commission, and information procedures with unions.

   A takeover of the third-largest containership operator by the largest would create a mega-containership operator with an unprecedented 17-percent share of the container shipping market and a combined fleet of nearly 500 ships.

   Because of the large scale of the takeover, the bid will be referred to the European Commission competition directorate under European merger regulations. The regulations stipulate that the EC watchdog will vet any merger when the worldwide revenue of the combined future entity exceeds 5 billion euros ($6.4 billion) and when the European revenue for each company tops 250 million euros ($322 million).

   P&O Nedlloyd’s container division alone has a worldwide revenue of $6.7 billion, while the A.P. Moller-Maersk group has annual revenues of DKK166 billion ($28.7 billion).

   The EC will want to be satisfied that the merger “would not adversely affect competition,” a spokeswoman for the competition directorate told American Shipper. The EC has not been notified of the merger proposal, yet.

   'This will be a really big merger,' said Rene Zimmermann, manager of the International Federation of Freight Forwarders Associations, better known as FIATA. 'It will change the market, for sure.'

   Zimmermann said a combined Maersk Sealand-P&O Nedlloyd carrier group 'will not be a mega-carrier, but a mega-mega-carrier.' He sees the gap between a combined Maersk Sealand-P&O Nedlloyd and the Mediterranean Shipping Co., the world's second-largest containership carrier, as widening.

   In a presentation to the media, the management of A.P. Moller-Maersk and Royal P&O Nedlloyd argued that the container shipping industry today is “highly fragmented” and that “consolidation is necessary.” The takeover would result in “better service for customers through more port calls, direct services, wider geographical scope and enlarged service diversity,” they added.

   A.P. Moller-Maersk and Royal P&O Nedlloyd expect regulatory decisions to be made mid-July.

   The $3 billion takeover is the largest ever in the container shipping history, and dwarfs the $800 million takeover of Sea-Land Service by Maersk in 1999. At that time, Maersk Sealand lost some of the two carriers’ combined market share following the acquisition.

   Commenting on the proposed offer, Andrew Land, chairman of P&O Nedlloyd, said: “In this fragmented industry we believe these two highly complementary businesses will achieve far more together than apart.”

      “Their combined scale and know-how will create the world’s leading container shipping line and logistics provider,” he added.

   A.P. Moller-Maersk is expecting to find economies of scale from the combination of the Maersk Sealand and P&O Nedlloyd networks.

   “A combination of P&O Nedlloyd and the Maersk container business will create new and exciting opportunities in global commerce,” said Knud E. Stubkj'r, chief executive officer of Maersk Sealand and partner of A.P. Moller.

   The Danish group anticipates that the takeover will imply a reduction of about 1,500 full time positions worldwide, equal to 5 percent of the combined workforce. Royal P&O Nedlloyd has a staff of about 13,000 today, compared to about 22,000 for Maersk’s container business.

   P&O Nedlloyd's board of directors would step down following completion of the offer and Royal P&O Nedlloyd would be taken off the Amsterdam stock exchange.

   Subject to the necessary threshold being reached, Maersk expects to initiate procedures to acquire all shares held by minority shareholders. The offer will become unconditional if 70 percent or more of the shares are tendered to Maersk.

   “The Netherlands Authority for the Financial Markets (Autoriteit Financi'le Markten), Euronext Amsterdam and the Social Economic Council (Sociaal Economische Raad), and the relevant antitrust authorities have been or will be informed of the intended offer,” the two companies said.

   A.P. Moller-Maersk said it has “readily available funds to complete the offer.”

   In a separate development, P&O Nedlloyd reported today higher revenues, freight rates and profits for the first quarter of this year. Revenue was up 16 percent to $1.7 billion for the quarter and operating profit up 252 percent to $74 million, from $21 million in the first quarter of 2004.

   Average freight rates went up 5 percent year-on-year in the first quarter, to $1,564, from $1,374. P&O Nedlloyd’s average transatlantic freight rate rose 12 percent to $1,652, while its average transpacific freight rate for the first quarter increased 3 percent to $1,630.

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