CMA CGM Offers $2.4 Billion to Take Over Neptune Orient

  • Temasek selling its stake as local shipper runs up losses
  • Deal will help French line compete with its larger rivals

CMA CGM SA offered to buy Singapore’s Neptune Orient Lines Ltd. for S$3.38 billion ($2.4 billion), creating a container shipping line with stronger Asian and U.S. routes that narrows the gap with market leader A.P. Moeller-Maersk A/S.

The French company, the No. 3 container shipping company by capacity, will pay S$1.30 a share, 6.1 percent more than Neptune Orient’s closing price Friday, the two companies said in a statement Monday. Shareholders have approved the takeover, including Singapore state investment company Temasek Holdings Pte, which owns about 67 percent of Neptune Orient.

The transaction will create a combined company with full-year revenue of $22 billion and increased trade lines to compete against Maersk Line, the container-shipping division of A.P. Moeller-Maersk, and Mediterranean Shipping Co. Neptune Orient, which has posted losses in five of the past six years, is among a number of shipping companies exploring mergers and acquisitions amid a glut of capacity, declining demand and lower rates that could make this the industry’s worst year since 2009. 

“This is a very good price. Anything more than that would have been hard to get,” Rahul Kapoor, a Singapore-based director at Drewry Maritime Services Pvt, said in an e-mail. “CMA CGM is taking a calculated risk” buying at the bottom of the cycle, but the move is “ultimately good for the industry,” he said.

Big Deal

The deal is the largest for the container shipping industry since Maersk bought Royal P&O Nedlloyd NV for the equivalent of $2.96 billion in 2005. Germany’s Hapag-Lloyd AG merged last year with Chile’s Cia. Sud Americana de Vapores SA, and the Chinese government is said to be preparing a plan to combine China Cosco Holdings Co. and China Shipping Container Lines Co. or merge some of their operations.

Neptune Orient and CMA CGM said they expect to gain regulatory approval for the deal by the middle of next year. Once it’s concluded, the French company plans to sell at least $1 billion worth of assets. CMA CGM will pay a $100 million fee if the transaction is terminated.

Marseilles-based CMA CGM currently has 8.8 percent of the global shipping market. The combined company will operate 563 vessels and have about 11.5 percent of the global shipping market, according to the statement. CMA CGM will set up its regional head office in Singapore. 

Maersk Line has a 14.7 percent market share, according to shipping-data provider Alphaliner. Maersk Line posted revenue of $27.35 billion in 2014, the company said on its website.

Key Markets

Neptune Orient shares will resume trading Tuesday after they were halted Monday. CMA CGM said it doesn’t plan to keep the Singapore company’s listing.

The deal will strengthen the combined company’s position on shipping routes in key markets such as the U.S. and within Asia, the statement said. Neptune Orient’s APL unit, which operates container ships, has a strong presence on intra-Asia and trans-Pacific trades, while CMA CGM has a leading position on Asia-Europe routes, the companies said.

The combination will increase the size of the company, allowing it to deploy ships more efficiently and lower unit costs, Neptune Orient Chief Executive Officer Ng Yat Chung said Monday afternoon in a Singapore press briefing. The French company plans to make more port calls to Singapore, sending more volume through the city’s port, CMA CGM Vice Chairman Rodolphe Saade said.  

Founded in 1978, CMA CGM had net income of $51 million in the third quarter, down 75 percent from a year earlier, according to its website.

Neptune Orient posted its worst loss in six quarters for the July-to-September period, as efforts to raise rates failed during what’s usually the peak period ahead of year-end holidays. In May, the Singapore-based company sold its APL Logistics arm to Kintetsu World Express Inc. for $1.2 billion to raise cash.

Shrinking Margins

By selling Neptune Orient, Temasek will be able to focus on its investments in consumer, financial services and life sciences and agriculture. Almost half of Temasek’s portfolio additions in the 12 months ended March 31 were in developing Asia, followed by North America and Europe, according to its annual report.

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 combined volume of containers carried by the main liners shrank 1.5% during the third quarter, in what’s turning into the weakest year for the industry since 2009, Alphaliner said in its Dec. 1 newsletter.

Carriers’ operating margins are forecast to worsen further in the fourth quarter, with the majority expected to turn in negative results, according to Alphaliner.

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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