China Cosco Shipping Corporation (Cosco) has agreed to acquire a majority shareholding in Orient Overseas International Ltd (OOIL), owner of the world’s seventh-largest container shipping company OOCL, in a deal that values OOIL at around US$6.3 billion
The announcement yesterday marks the latest in a series of major acquisitions and mergers within the global container shipping market and follows months of speculation and recent denials from representatives of both parties that talks had been talking place.
Under the acquisition agreement, China Cosco Shipping Corporation’s listed subsidiary Cosco Shipping Holdings, along with Shanghai International Port Group (SIPG), have made a pre-conditional voluntary general offer to all shareholders of OOIL to acquire all issued OOIL shares at an offer price of HK$78.67 in cash, valuing OOIL at HK$49.2 billion (US$6.3 billion). On completion, assuming all OOIL shareholders tender their shares, Cosco Shipping Holdings will hold 90.1%, while SIPG will hold 9.9% of OOIL.
The offer is dependent upon the satisfaction of pre-conditions, which include the necessary regulatory approvals as well as approval from Cosco Shipping Holdings’ shareholders. OOIL’s controlling shareholder, the Tung family, which currently holds 68.7% of OOIL, has “irrevocably undertaken to accept the offer”.
The combined Cosco Shipping Lines and OOCL will operate more than 400 vessels, with capacity exceeding 2.9 million TEUs, including orderbook, turning the combined Chinese group from the world into the third-largest player globally. Cosco Shipping Lines, a wholly owned subsidiary of Cosco Shipping Holdings (the listed company controlled by China Cosco Shipping Corporation), is currently the world’s fourth-largest container shipping company with an operating fleet capacity of 327 ships and 1.7 million TEUs.
However, Cosco Shipping Lines and OOIL will continue to operate under their respective brands upon completion of the deal, expected early next year.
Explaining the rationale for the merger, the two said: “The combination will enhance the industry leading position of both companies as a whole. It is believed that the combination of Cosco Shipping Holdings and OOIL can deliver a stronger competitive advantage.
“OOIL is the seventh-largest container shipping company in the world, with extensive container shipping routes and networks. It is known for its superior service and operational performance in the global maritime industry.”
Lloyd’s List said that while scale matters, Cosco Shipping will gain more than just capacity, with OOCL regarded as one of the best-run container lines in the business. While there “should be fewer clashes of corporate culture than if Cosco has succeeded in its tentative bid for Hamburg Süd last year”, the Chinese carrier should benefit from OOCL’s westernised business disciplines, it added.
This is consistent with a statement of the two lines yesterday, which commented: “By leveraging the strengths of each company and achieving synergies, the businesses will enhance their operating efficiencies and competitive positions to achieve sustainable growth in the long term.”
Both companies are members of the Ocean Alliance consortium of container lines, and “will continue to work together under this framework”, the two carriers said. Analysts say the merger will change the balance of power within the Ocean Alliance, where CMA CGM is currently the largest member.
Andy Tung, executive director of OOIL, commented: “We are proud of the business we have built and the people who have been building it. This decision has been carefully considered and we believe it helps ensure the future success of OOIL. We are confident that Cosco Shipping Holdings is the right partner for us.”
Wan Min, chairman of Cosco Shipping Holdings, said: “We respect OOIL’s management team and its expertise, not to mention its people, brand and culture.
“Our company remains committed to enhancing Hong Kong as an international shipping centre. Following completion, we will continue to invest and strengthen our industry leadership, providing a more extensive platform for the employees of OOIL to excel.”
The acquiring companies intend to maintain OOIL’s listed status following close of the offer, and “are committed to retaining the existing compensation and benefit system at OOIL and will not terminate the employment of any employee at OOIL as a result of this transaction for at least 24 months after the close of the offer”.
They also intend to maintain OOIL’s global headquarter functions and presence in Hong Kong, “and utilise the advantage of both companies’ global network to contribute to the economic prosperity of the territory and development of Hong Kong as an international shipping centere”.
The board of directors of OOIL has established an Independent Board Committee to advise the shareholders of OOIL in connection with the offer, and an independent financial adviser will be appointed.
Cosco Shipping Lines, a wholly owned subsidiary of the China Cosco Shipping Group, is the world fourth-largest container shipping company with its operating fleet capacity of 327 ships and 1.7 million TEUs. Cosco Shipping Ports, another controlled subsidiary of the China Cosco Shipping Group, operates a total of 158 container berths in 30 ports around the world, with the total annual handling capacity of 97.25 million TEUs.
Cosco Shipping Holdings said it was “committed to become a top-tier container shipping and port service provider with its continuing efforts to build up a global network, provide customers with integrated solutions and create higher return for shareholders”.
The acquisition is one of the largest in a series of major consolidation events within the global container shipping market in the last three years. Key milestones in this have been CMA CGM’s $2.4bn acquisition of NOL in 2016; the merger in 2016 of Cosco and China Shipping; the 2016 bankruptcy of Hanjin Shipping; Maersk’s $4bn acquisition of Hamburg Süd; the merger this year of Hapag-Lloyd and UASC; and the announcement last year by Japan’s NYK, MOL and K Line to merge their container lines.