Maersk, HMM deny merger speculation

Both carriers have refuted analyst reports that industry leader Maersk Line intends not just to bring Hyundai Merchant Marine into the 2M Alliance it shares with MSC, but to merge with or buy the struggling South Korean line.    Ocean carriers Maersk Line and Hyundai Merchant Marine are refuting reports from multiple media outlets and industry analysts that the two might be in discussions about a formal business combination.
   News broke late last month that South Korean ocean carrier HMM had begun talks with Maersk and 2M Alliance partner Mediterranean Shipping Co. (MSC) regarding entrance into the east-west vessel sharing agreement. South Korea’s second largest ocean shipping line, which is in the midst of a massive debt restructuring and “self-rescue” plan, was left out of the recently formed OCEAN Alliance and THE Alliance VSAs.
   That announcement sparked widespread speculation that Maersk’s real motive in meeting with HMM might be to merge with or buy outright the struggling company.
   “Maersk’s aim is not actually having HMM as a junior alliance partner, but rather to prepare to acquire it or joint venture with it (the same way Maersk courted Sea-Land and then P&O Nedlloyd before buying them),” London-based consultant Drewry wrote in its monthly Container Insight newsletter.
   Although both Maersk and HMM dismissed the reports, the rumors have been rekindled following a Reuters interview with Maersk board member Jakob Stausholm.
   “If you look at the history of Maersk Line, we have achieved our leadership position by the combination of organic growth and acquisitions. If the right opportunity is there we will look into it,” said Stausholm.
   This has since prompted both carriers to issue blanket denials and no comments.
   “As per our policy we do not comment on rumors and speculation,” a Maersk spokesperson said in an e-mailed statement. “What we can confirm is, as you know, that 2M is in discussions with HMM on the possibility of HMM joining the 2M vessel sharing agreement when their membership of the G6 alliance expires in 2017.”
   A spokesperson for HMM went a step further, referring to the M&A rumors as “groundless.”
   To be clear, there is no credible evidence to support these rumors, but a tie-up might make sense for Maersk given its intention to grow and willingness to do so via acquisition. The ocean shipping market is at the moment laden with persistent overcapacity that has driven rates to historic lows on the largest and most important trade routes.
   This means a couple of things. First, carriers will continue to have a hard time turning a profit without some form of consolidation or removal of capacity from the market, some of which we’ve already seen with the merger of Chinese lines COSCO and China Shipping, CMA CGM’s purchase of APL parent Neptune Orient Lines, and Hapag-Lloyd’s pending combination with United Arab Shipping Co. (UASC). Second, growing through organic means, i.e. courting market share with aggressive pricing as opposed to purchasing a company and its existing customer base, could prove to be exceedingly difficult.
   HMM, for example, has a relatively strong foothold in the transpacific trade between Asia and North America, one that Maersk would likely be more than happy to secure for itself. Maersk could also be interested in HMM’s newer 8,000-TEU to 10,000-TEU ships as a way to replace its aging fleet of S-Class vessels, built in the 1990s, without adding new capacity to an already bloated market.
   It’s important to keep in mind, however, that as with any M&A activity, the success or failure of such a tie-up would rely heavily on Maersk’s ability to convert HMM’s existing customers, which is hardly a given. The assets of another carrier alone will rarely be enticing enough to purchase the company, so a large portion of its valuation lies in its book of business.
   Companies engaging in M&A on this scale must also be aware of the costs of integrating potentially disparate technologies and corporate cultures, as well as staffing and operational redundancies. These factors can all add significantly to the initial purchase price if the integration is not properly planned and executed.