It is going to be an interesting week for Neptune Orient Lines, the beleaguered container shipper, 67%-owned by Temasek Holdings. On Nov 21, CMA CGM of France emerged as the preferred bidder for the company, and it now has until Dec 7 to do its due diligence. Yet, with shares in NOL already up more than 48% since end-June, fuelled by anticipation of a buyout, there may not be much more upside even if an offer from CMA CGM materialises. On the other hand, NOL could fall sharply if CMA CGM walks away, as alternative offers for the company are likely to be less attractive.

Andy Lane, a partner at Container Transport International Consultancy (CTI), says the sector has been grappling with overcapacity since the global financial crisis. And, while a broad consolidation is necessary for the industry to recover, potential acquirers are wary of paying too much. NOL’s core business is the Transpacific route, and part of its attractiveness is its relatively new fleet of six “Temasek” class vessels held under its subsidiary APL. With a capacity of 13,900 TEUs each, they are ideal for the Transpacific route. Its 10 “Paris” class vessels are the largest vessels that can go through the Panama Canal to reach the east coast of the US. All in, APL has 94 vessels with a total capacity of 1.1 million TEUs, according to NOL’s website.

The way Lane sees it, before the big run in NOL, the value of the company was equivalent to the cost of ordering 15 new, highly efficient 25,000 TEU container ships. “That is half of what you get if you buy the NOL fleet, but it doesn’t come with debt and employees,” Lane observes. With NOL now trading at a much higher level, however, it has become a much less attractive acquisition target. NOL has more than 7,000 employees and had a net debt position of US$2.6 billion ($3.7 billion) as at end-September. NOL’s most likely acquirer, CMA CGM, had a net debt position of US$3.3 billion as at end-September.