French shipper CMA CGM SA made an all-cash offer Monday to buy shares of container company Neptune Orient Lines Ltd. , in a deal that values the Singapore firm at around 3.38 billion Singapore dollars (US$2.4 billion) and marks a rare consolidation of container-shipping lines in recent years.
CMA CGM, the world’s third-largest shipping line, has offered to pay S$1.30 per NOL share. It has undertaking from Singapore’s state investment firm Temasek Holdings Pte. Ltd. and its units, which have agreed to sell a 67% stake to the French shipper, NOL said in a filing to the Singapore Exchange.
At that price CMA will pay Temasek about US$1.6 billion dollars, and the move will trigger an offer for the whole of NOL. That offer, which will include US$2.4 billion in cash, comes to around US$5 billion once NOL’s debt is included, people familiar with the deal said.
Singapore law says an acquirer has to make an offer to buy the whole company if its stake is larger than 30%.
The Wall Street Journal reported this month that CMA CGM was the preferred bidder for NOL along with the value of the deal.
The acquisition is the biggest such sale this year in Singapore, which has seen a recent drought in equity fundraising especially in the initial public offering market. The offer represents a 1.6% premium to Friday’s traded price of S$1.225.
“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. 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,” NOL Chief Executive Ng Yat Chung said.
Sluggish global trade and overcapacity have hammered even the biggest shipping lines, forcing many into alliances and cost-cutting. Many blame the industry’s fragmented nature for its struggles. With few companies controlling more than 5% of the market, reducing the glut of ships is taking longer than many industry observers had anticipated. NOL handles about 3% of global container volumes.
Even so, consolidation has been rare. Several potential takeover targets, such as NOL, are controlled by sovereign-wealth funds and state investment funds, which can afford to ride out the industry’s boom-and-bust cycle. Others are private or family-controlled outfits, which often take similar long-term views.
NOL’s Asia-to-Americas routes would fill a weak spot for CMA CGM, whose executives have said they are looking to expand into new territories.
“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,” CMA CGM Vice-Chairman Rodolphe Saadé said. “We recognize the strategic importance of Singapore as a key hub for the maritime industry and we are committed to reinforcing its regional leadership.”
NOL had been searching for a buyer for months. The company reported a $96 million loss in the third quarter and sold its profitable logistics business, APL Logistics Ltd., for $1.2 billion to Kintetsu World Express Inc. in May.
CMA CGM faces pressure to expand as two state-owned Chinese shipping giants, China Ocean Shipping Co. and China Shipping Group Co., are in advanced talks to merge. CMA CGM employs about 22,000 people world-wide and manages a fleet of 470 ships.