CMA CGM Said Near $2.4 Billion Cash Offer for Neptune Orient

  • Buying Temasek's stake would trigger mandatory takeover offer
  • French company plans to make Singapore regional headquarters

France’s CMA CGM SA is nearing a definitive offer to buy Neptune Orient Lines Ltd. for about S$3.4 billion ($2.4 billion), people with knowledge of the matter said, consolidating its position in an industry facing its worst year since 2009.

CMA CGM plans to offer about S$1.30 a share in cash for the Singapore-based container line, the people said, asking not to be named ahead of a formal announcement expected as soon as Monday in Singapore. Shares of Neptune Orient, Southeast Asia’s biggest container shipping company, were halted from trading pending an announcement, according to a company filing.

A deal would combine Neptune Orient and the world’s third-largest container company to strengthen their positions against market leaders A.P. Moeller-Maersk A/S and Mediterranean Shipping Co. Liners have idled about 5 percent of the global fleet, reduced expenses, sold assets and cut employees in an attempt to stem years of losses as sluggish global growth and an oversupply of vessels eat into shipping rates.

Singapore state investment company Temasek Holdings Pte. owns about 67 percent of Neptune Orient, according to data compiled by Bloomberg. Buying Temasek’s stake would trigger a mandatory offer for all other shares in the shipping company under local takeover rules.

Regional Headquarters

CMA CGM plans to set up its regional headquarters in Singapore, the people said. Spokesmen for CMA CGM and Temasek declined to comment. A representative for Neptune Orient didn’t immediately respond to a request for comment. 

Neptune Orient has posted losses in five of the past six years. The company posted its worst loss in six quarters for the July-to-September period after efforts to raise rates failed during what is usually the peak period before the year-end holidays. 

About 47 percent of the 1.83 million 40-foot containers Neptune Orient transported in the the first nine months of this year were within Asia, according to the company’s third-quarter earnings report. Another 28 percent were on the trans-Pacific trade and 16 percent were on Asia-Europe routes.

CMA CGM, with more than 22,000 employees worldwide, has about 470 vessels working 170 shipping lanes, according to its website. Its main hubs are Malta, the Moroccan city of Tangier, Khor Fakkan in the United Arab Emirates, the Jamaican capital of Kingston and Malaysia’s Port Klang. Set up in 1978, the company is controlled by the family of founder Jacques Saade.

Earnings Drop

The French company’s net income in the third quarter fell 75 percent to $51 million, according to its website. It expects rates to remain weak in the fourth quarter and “rebalance” next year.

Global shipping companies had average operating margins of negative 1.8 percent in the third quarter, compared with a 3.4 percent profit margin a year earlier, according to Alphaliner. The volume of containers carried in the period dropped 1.5 percent amid low demand on European routes, and average freight rates fell to historical lows across major tradelanes, the shipping-data provider said in its weekly newsletter. 

Combined liftings reported by the main carriers shrank 1.5% during the third quarter, in what is turning into the weakest year for container shipping volumes since 2009, according to the Alphaliner newsletter for the week ended Dec. 1.

Weaker Margins

Carriers’ operating margins are forecast to worsen further in the fourth quarter, with the majority expected to turn in negative results, according to Alphaliner. A glut of ships could mean years more of financial pain, according to Drewry Shipping Consultants Ltd.

The spot rate to haul a 20-foot standard container to Europe from Asia fell 50 percent to $275 for the week ended Dec. 4 as efforts by shipping companies to raise the levy failed, according to the Shanghai Shipping Exchange. The levy for a 40-foot box to the U.S. West Coast dropped 4.8 percent to $891.

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