Neptune Orient Jumps to Highest Since May on Takeover Talks

  • Company says it's in preliminary talks with CMA CGM and Maersk
  • 2016 could be worse for industry: Drewry Maritime's Kapoor

Neptune Orient Lines Ltd. jumped to the highest level in more than five months in Singapore trading after the company became a takeover target for two of the world’s largest container ship operators.

Shares of Neptune Orient, which gained as much as 8.1 percent earlier, closed up 1 percent at S$1.055, the highest price since May 22. The stock has advanced 26 percent this year, compared with an 11 percent decline in Singapore’s Straits Times Index.

Neptune Orient, Southeast Asia’s biggest container shipper, said Saturday it’s in separate preliminary talks with CMA CGM SA and A.P. Moeller-Maersk A/S on a possible sale of the company. CMA CGM has made a preliminary offer for Neptune Orient and is conducting due diligence, though it hasn’t been granted exclusivity, while discussions with Maersk are less advanced, people with knowledge of the matter said before Neptune Orient’s announcement.

“NOL is a good asset,” said Rahul Kapoor, a Singapore-based director at Drewry Maritime Services Pvt, a shipping research company. Still, "it’s unlikely to turn profitable next year. 2016 could be even worse for the shipping industry.”

Rates Decline

Liners including Neptune Orient have been reducing costs, selling assets and cutting employees to stem years of losses as sluggish global commerce and overcapacity eat into shipping rates. Neptune Orient, which helped cement Singapore’s status as a global trade hub, is attracting takeover interest after simplifying its structure this year by selling its $1.2 billion logistics unit.

“NOL has a duty to assess all options to maximize shareholder value and improve its competitiveness,” Neptune Orient said in a statement. The discussions are preliminary and there’s no assurance that a definitive agreement will be reached, it said.

CMA CGM is in discussions on a “potential combination with Neptune Orient Lines,” the Marseille-based company said Monday. Maersk Chief Executive Officer Nils Smedegaard Andersen said before Neptune Orient’s announcement that “we will look at everything that comes up for sale in the market but our base strategy is to grow organically.” Maersk hasn’t commented after the Asian shipping company’s confirmation.

Temasek Ownership

A deal is unlikely to be struck soon, as the slumping shipping sector damps appetite for aggressive bidding, two of the people said. Temasek Holdings Pte, the Singapore state investment company that owns 67 percent of Neptune Orient, may not be willing to sell its stake at a low price, they said.

Acquiring Neptune Orient would help consolidate CMA CGM’s No. 3 position in container shipping as it competes with market leaders Maersk and Mediterranean Shipping Co. Neptune Orient’s APL container unit has a 2.7 percent market share, while CMA CGM controls 8.9 percent of the market, according to data from industry consultant Alphaliner. 

Companies are removing vessels on some trade routes to address overcapacity and help lift rates. Still, ships with a combined capacity of about 2.9 million 20-foot containers are due for delivery in 2015 and 2016, and that could mean another three years of overcapacity and financial pain, according to Drewry Shipping Consultants Ltd.

Spot rates to haul a 20-foot container to Europe from Asia fell 32 percent to $674 for the week ended Nov. 6, according to the Shanghai Shipping Exchange. Rates fell to a four-month low of $233 a box last month.

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