China Cosco Shipping to buy Orient Overseas for $6.3bn
Deal would create stronger Asian competitor to Maersk and Mediterranean Shipping
China Cosco Shipping has sealed a deal to buy Orient Overseas International of Hong Kong for $6.3bn in cash, in the latest wave of M&A in container shipping, as the battered industry navigates its way to sustainable profitability.
The takeover, announced on Sunday, between two members of the Ocean Alliance grouping of container lines, creates a potentially stronger Asian competitor to the P2 Alliance of Denmark’s Maersk Line and Switzerland’s Mediterranean Shipping Company, operators of the two largest container fleets.
The HK$78.67 offer is at a 31 per cent premium to Orient Overseas’ closing price on Friday and has already been accepted by the controlling shareholder, CC Tung, whose family owns a 68.7 per cent stake.
If the deal obtains regulatory approval, China Cosco will hold 90.1 per cent of the enlarged group, while its partner in the offer, Shanghai International Port Group, will hold the remainder.
The combined group will operate more than 400 vessels and operate the world’s third largest container ship fleet according to Alphaliner, the shipping data provider.
There have been eight M&A deals in the industry in the last four years, with the market now bifurcated between big players going aggressively after market share in the premier routes and companies falling into a second-tier level, such as Orient Overseas, according to Basil Karatzas, chief executive of Karatzas Marine Advisors.
“The acquisition of Orient Overseas further strengthens Cosco’s market position and gives it the critical mass to compete with the very top players in every respect,” he said, adding that “there is little doubt that Cosco likely will not be done and is likely to go after more targets in the near future.”
China Cosco was formed at the end of 2015 out a merger between China’s two biggest state-owned shipping lines, Cosco and China Shipping.
Orient Overseas was established in 1950 by Mr Tung’s father, CY Tung, after fleeing from communism in mainland China. Once one of the sector’s most profitable operators, it has struggled to recover fully from the sharp downturn that hit the industry in the global recession of 2008.