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Hapag-Lloyd Talks to CSAV on Tie-Up to Fight Industry Slump

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Dec. 5 (Bloomberg) -- Hapag-Lloyd AG is discussing a possible merger with Cia. Sud Americana de Vapores SA, Latin America’s biggest container shipping line, as the companies struggle to overcome a global trade slump that has left their industry in crisis.

Talks are focused on whether “a possible business combination or any other form of association would be of mutual interest,” Hamburg-based Hapag-Lloyd said in a statement today. CSAV shares rose 3 percent to 29.40 pesos at 12:21 p.m. in Santiago, bringing their two-day gain to 16 percent after Die Welt newspaper first reported the talks yesterday.

Hapag-Lloyd, the biggest German container line with a fleet of 152 vessels, is still reeling from the downturn triggered by the 2008 collapse of Lehman Brothers Holdings Inc., reporting a 64 percent decline in profit for the third quarter, its peak season. It’s turning to CSAV after talks to merge with local competitor Hamburg Sued failed in March because shareholders of both companies couldn’t agree on terms.

The talks with Valparaiso, Chile-based CSAV “have not resulted in any binding or non-binding agreement between the parties,” Hapag-Lloyd said in the statement, without elaborating further.

If Hapag-Lloyd combined operations with CSAV it would become the world’s fourth biggest container liner in terms of capacity, according to data compiled by Alphaliner. The German company currently ranks sixth with a 4.1 percent share of the market, while CSAV is No.20 with a 1.5 percent share.

Latin America Trade

The fact that CSAV, like Hamburg Sued, has a strong presence in Latin America adds to the benefits of a potential deal, said Thomas Wybierek, a shipping analyst at Hanover-based Norddeutsche Landesbank Girozentrale.

“It would be good for Hapag-Lloyd to have a partner on the Latin America-Europe trade lane, as I expect the upcoming P3 alliance by the three biggest industry players to further depress freight rates in 2014,” he said by phone.

Wybierek referred to plans by industry leader A.P. Moeller-Maersk A/S to form an alliance with its two closest competitors, Mediterranean Shipping Co. and CMA CGM SA, in the second quarter of 2014 to cut costs and end years of overcapacity.

Billionaire Luksics

The billionaire Luksic family controls CSAV with a 46 percent stake. Their holding company Quinenco SA has put more than $1 billion into CSAV in the past two years after the company lost a record $1.25 billion in 2011. The company reported losses of $108 million in the first nine months of 2013, and hasn’t had an annual profit since 2010.

Top executives of Hapag-Lloyd and CSAV last month met in Miami to discuss a possible merger, Die Welt reported on its website, without saying how it got the information.

Hapag-Lloyd is owned by a group of shareholders including German tourism company TUI AG, HSH Nordbank AG and the city of Hamburg. TUI, which holds a 22 percent stake, has endorsed an initial public offering. CEO Friedrich Joussen on Nov. 7 said that he doesn’t expect an exit through an IPO before Hapag-Lloyd’s Rolf Habben-Jansen replaces current CEO Michael Behrendt next July.

“A cooperation or merger with CSAV may be a good option until time is ripe for an IPO,” Wybierek said. At the moment Hapag-Lloyd is not the growth story it needs to be to attract investors, as competition will further increase in 2014 with the P3 alliance.’’

In response to glut in vessels, Hapag-Lloyd formed an alliance in Asia-Europe trade, called G6, in March 2012. The other partners are APL, Hyundai Merchant Marine, Mitsui O.S.K. Lines, Nippon Yusen Kaisha and Orient Overseas Container Line.

To contact the reporter on this story: Nicholas Brautlecht in Hamburg at nbrautlecht@bloomberg.net

To contact the editor responsible for this story: Angela Cullen at acullen8@bloomberg.net

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