SINGAPORE (Dec 8): CMA CGM SA’s $3.38 billion takeover of Neptune Orient Lines offers two advantages for Singapore: It allows state investment firm Temasek Holdings to get rid of a money-losing business, while furthering the city-state’s ambitions as a shipping hub.
The French company, the world’s third-biggest shipping company by capacity, offered $1.30 a share, 6.1% more than Neptune Orient’s last closing price of $1.225 Friday. Temasek agreed to sell its roughly 67% stake, triggering a mandatory takeover offer by CMA CGM for the remaining shares.
The deal lets Temasek break free of a company that has made losses in five of the past six years, and pocket US$1.6 billion ($2.25 billion) from it, while CMA CGM expands its trade links within Asia and to the US. The Marseilles-based company will make Singapore its Southeast Asian headquarters and deploy more vessels there, bringing in more container volume than Neptune Orient could achieve on its own.
“Ultimately it’s all about entrenching Singapore’s role as a hub, be it for logistics, financial or legal services,” said Song Seng Wun, an economist at CIMB Private Banking in Singapore. “If we can’t be physically moving the goods we do the next best thing, which is managing and making money from the various spokes and hubs that connect the movement.”
Largest Deal
Neptune Orient were unchanged at $1.225 as of 9:02 a.m. in Singapore, trading below the offer price. The stock resumed trading Tuesday after being halted Monday. The shares have advanced 46% this year before Tuesday, compared with a 14% decline for the city’s Straits Times Index. CMA CGM, which is closely held, said it doesn’t plan to keep the Singapore company’s listing.
The deal is the largest in the container shipping industry since Maersk bought Royal P&O Nedlloyd NV for the equivalent of US$2.96 billion a decade ago. It comes as several shipping companies explore mergers and acquisitions amid a glut of capacity, declining demand and lower freight rates.
Germany’s Hapag-Lloyd AG merged last year with Chile’s Cia. Sud Americana de Vapores SA. 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. Local media said in November that South Korea’s government was exploring a merger of Hanjin Shipping Co. and Hyundai Merchant Marine Co., though the nation’s Financial Services Commission denied the report.
Greater Capacity
Monday’s deal will create a company with annual revenue of US$22 billion and increased capacity to compete against Maersk Line, the container-shipping division of A.P. Moeller-Maersk, and Mediterranean Shipping Co. The combined company will have 543 vessels able to carry a total of 2.33 million 20-foot containers, the two companies said. It will have about 11.5% of the global shipping market, according to the statement announcing the deal, while Maersk Line has 14.7%, according to shipping-data provider Alphaliner.
Neptune Orient President and Chief Executive Officer Ng Yat Chung noted the company’s history in helping make Singapore a global shipping center, but said the city’s position is now well established and would even be strengthened by the deal.
Singapore Hub
The new owners “will be looking to reinforce Singapore’s competitive position as a maritime hub,” he said at a news conference Monday afternoon, several hours after the deal was announced.
CMA CGM Vice Chairman Rodolphe Saade said it was committed to the idea of a hub in Singapore, in addition to its existing one in Port Klang, Malaysia.
The combination “will mean significant volumes and it will be difficult to use only one hub in the area,” Saade said at the news conference. “Having the two hubs made quite a lot of sense to us.”
For Temasek, selling Neptune Orient allows it to focus on investments in consumer, financial services and life sciences and agriculture. The deal joins Neptune Orient to a leading industry player with an extensive global presence, Tan Chong Lee, Temasek’s head of portfolio management, said in a statement on the fund’s website.
Fragmented Market
“NOL is a small player in a fragmented industry. There’s nothing Temasek can do to change its fortunes,” said Timothy Ross, a Singapore-based analyst at Credit Suisse Group AG. “At this stage they would rather direct their resources, both managerial and financial, into more value-added, long-run businesses where Singapore has some competitive advantage.”
Not everyone was so enamored of the deal. Standard & Poor’s Rating Service maintained its B+ rating on CMA CGM but lowered its outlook to negative from stable.
The deal “has reduced the company’s available cash position and will weaken its credit measures,” the ratings agency said in a release Monday. “We also see a risk that CMA CGM’s liquidity may deteriorate further over the next few quarters as a result of continued pressure on freight rates.”
Once the deal is concluded, CMA CGM plans to sell at least US$1 billion worth of assets, according to the statement to the exchange. Michel Sirat, the French line’s chief financial officer, said both companies’ operations would be reviewed and that vessels, terminals and containers could be sold.
“The key takeaway here is Singapore’s efficiency,” said Rahul Kapoor, a Singapore-based director at Drewry Maritime Services Pvt. “This shows that Singapore is focusing growth on industries rather than on individual companies. That will help Singapore maintain its global hub status even after the sale” of Neptune Orient.