Daily Management Review

CMA CGM Offer of $2.4 b for Singapore NOL Would Make it the Dominant Player in Trans Pacific Lane


CMA CGM Offer of $2.4 b for Singapore NOL Would Make it the Dominant Player in Trans Pacific Lane
With the aim to expand its presence on trans-Pacific routes, France's CMA CGM -  the world's third-largest container shipping firm, wants to buy out Singapore's Neptune Orient Lines.
The French company made a S$3.4 billion ($2.43 billion) offer on Monday for the bid.
The offer of S$1.30 a share in cash by the family-owned CMA CGM is 6 percent above NOL's last closing price on the stock exchange. The offer has been accepted by Temasek, which owns nearly 67 percent of NOL, and will tender all of its shares.
Anti-trust approvals would be required from the United States, Europe and China for the deal to go through. NOL CEO Ng Yat Chung told a briefing that a formal offer is expected to be launched around June 2016 after the approvals are obtained.
After posting four consecutive years of losses up to the year ended December 2014, the Singapore based company NOL has struggled amid a prolonged downturn in the global shipping market.
While smaller shipping firms at risk, consolidation is highly likely among the larger ones due to overcapacity, slower economic growth and weak commodity prices, Fitch said in a report last week.
"With few others having the resources or inclination, we suspect that this is not just the best offer for NOL stock but the only one," Credit Suisse analysts wrote in a report on Monday.
A difficult investment for Temasek is brought to a close by the CMA CGM's offer. In 2004, the state investor had raised its stake in NOL to 68 percent from 29 percent with a payment of S$2.80 a share. A mandatory cash offer would be made by CMA CGM for the remaining shares from minority shareholders that include BlackRock.
Discussions with NOL began a year ago, Rodolphe Saade, vice chairman of CMA CGM, told reporters in Singapore on Monday. CMA CGM will eventually consider listing its shares, possibly in Singapore.
This NOL deal is being tipped to be the biggest inbound deal for Singapore since 2013. Companies linked to Thai tycoon Charoen Sirivadhanabhakdi took control of conglomerate Fraser and Neave for $11 billion in 2013.
NOL's APL unit, the 13th-biggest in terms of capacity in the world, would reach a capacity of 2.33 million twenty foot equivalent units (TEUs) with an 11.5 percent global capacity share after the combination with CMA, say analysts at consultancy Alphaliner.
With combined revenue of $22 billion and 563 vessels, the deal will reinforce its global position, CMA CGM said.
 Credit Suisse analyst Timothy Ross said last month that while the CMA CGM's global ranking would not be changed with the deal, it would help the combined entity to rule over the trans-Pacific lanes with a 12 percent share. The nearest rivals would be the AP Moeller-Maersk's Maersk Line, the global leader, with just a 9 percent share in the trans-Pacific lanes.
However the deal would also add $2.9 billion debt of NOL to the CMA CGM, in addition to its own debt of $5 billion. There are plans by the French company to sell assets worth $1 billion from the combined entity over the next 18 to 24 months to cut debt as it is taking a bank loan to finance the deal.