Cosco Shipping Holdings Ltd (中遠海運控股) agreed to buy Orient Overseas (International) Ltd (OOIL, 東方海外國際) for US$6.3 billion in cash, creating the world’s third-largest container shipping company as the industry shrinks after years of losses and overcapacity.
Cosco, China’s biggest container carrier, is to pay shareholders of Hong Kong’s No. 1 box mover HK$78.67 per share, a 31 percent premium over the stock’s closing price on Friday, it said in an exchange filing on Sunday.
The Tung (董) family, which controls Orient Overseas, has accepted the offer that still needs regulatory approvals and consent from Cosco’s investors.
The combined entity is to only lag behind A.P. Moller-Maersk A/S and Mediterranean Shipping Co by capacity as container lines from Denmark to Japan pursue acquisitions, and become bigger amid a plunge in rates to move toys and computers.
Too many ships and companies chasing the same trade led to a collapse in freight rates and burgeoning losses, factors that pushed Hanjin Shipping Co into bankruptcy last year, stranding cargo ahead of the holiday season.
“This looks like a happy ending for both parties,” said Han Ning, China director for Drewry Shipping Consultants Ltd. “Cosco can benefit from OOCL’s [a subsidiary of OOIL] strong presence on routes from the Far East to Australia and to the US. The company’s operational efficiency has long been admired by outsiders as well.”
The combined entity is to operate more than 400 vessels with capacity exceeding 2.9 million 20-foot equivalent units, including order book.
Cosco has a market share of 8.4 percent while Orient Overseas has 3.2 percent, according to Alphaliner.
Their combined 11.6 percent share would make the merged entity the third-biggest container-shipping company, overtaking CMA CGM with 11.2 percent, according to the shipping data provider.
Former Hong Kong chief executive Tung Chee-hwa’s (董建華) family controls Orient Overseas with a stake of about 69 percent.
Shares of the company have rallied nearly 90 percent this year in Hong Kong, boosting its market value to US$4.8 billion. The advance compares with a 15 percent gain in the benchmark Hang Seng Index.
If the offer is accepted in full by the rest of the shareholders, Cosco and its unit would have to pay a total of about HK$49.2 billion (US$6.3 billion) to close the transaction, they said.
“This decision has been carefully considered and we believe it helps ensure the future success of OOIL,” Orient Overseas chief executive Andy Tung (董立均) said in a statement. “We are confident that Cosco Shipping Holdings is the right partner for us.”
On completion of the deal, Cosco Shipping is to hold 90.1 percent of Orient Overseas, while Shanghai International Port is to hold 9.9 percent.
The buyers plan to keep the shares of Orient Overseas listed after the closing of the offer and commit to retain all employees and their benefits, they said.
The heads of Maersk and Hyundai Merchant Marine Co have said that Asian container lines are set for further consolidation this year as firms join forces to cut costs and improve efficiency.
After Hanjin’s collapse, freight rates have been recovering.
The global container industry has been in turmoil since the 2008 financial crisis brought trade to its knees.
South Korea’s biggest container-shipping line Hanjin filed for bankruptcy protection last year while Maersk restructured its operations.
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