CMA CGM Offers $2.4 Billion to Take Over Neptune Orient

Kyunghee Park

Joyce Koh

December 7, 2015 — 12:19 AM ESTUpdated on December 7, 2015 — 1:46 AM

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CMA CGM SA offered to buy Singapore’s Neptune Orient Lines Ltd. for S$3.38 billion ($2.4 billion), creating a container shipping line with stronger Asian and U.S. routes that narrows the gap with market leader A.P. Moeller-Maersk A/S.

The French company, the No. 3 container shipping company by capacity, will pay S$1.30 a share, 6.1 percent more than Neptune Orient’s closing price Friday, the two companies said in a statement Monday. Shareholders have approved the takeover, including Singapore state investment company Temasek Holdings Pte, which owns about 67 percent of Neptune Orient.

The transaction will create a combined company with full-year revenue of $22 billion and increased trade lines to compete against Maersk Line, the container-shipping division of A.P. Moeller-Maersk, and Mediterranean Shipping Co. Neptune Orient, which has posted losses in five of the past six years, is among shipping companies exploring mergers and acquisitions amid a glut of capacity, declining demand and lower rates that could make this the industry’s worst year since 2009. 

“This is a very good price. Anything more than that would have been hard to get,” Rahul Kapoor, a Singapore-based director at Drewry Maritime Services Pvt, said in an e-mail. “CMA CGM is taking a calculated risk” buying at the bottom of the cycle, but the move is “ultimately good for the industry,” he said.

Big Deal

The deal is the largest for the container shipping industry since Maersk bought Royal P&O Nedlloyd NV for the equivalent of $2.96 billion in 2005. Germany’s Hapag-Lloyd AG merged last year with Chile’s Cia. Sud Americana de Vapores SA, and the Chinese government is said to be preparing a plan to combine China Cosco Holdings Co. and China Shipping Container Lines Co. or merge some of their operations.

Neptune Orient and CMA CGM said they expect to gain regulatory approval for the deal by the middle of next year. Once it’s concluded, the French company plans to sell at least $1 billion worth of assets. CMA CGM will pay a $100 million fee if the transaction is terminated.

Marseilles-based CMA CGM currently has 8.8 percent of the global shipping market. The combined company will operate 563 vessels and have about 11.5 percent of the global shipping market, according to the statement. 

By way of comparison, Maersk Line has a 14.7 percent market share, according to shipping-data provider Alphaliner. Maersk Line posted revenue of $27.35 billion in 2014, the company said on its website.

Key Markets

The combined company will strengthen its position on shipping routes in key markets such as the U.S. and within Asia, the statement said. Neptune Orient’s APL unit, which operates container ships, has a strong presence on intra-Asia and trans-Pacific trades, while CMA CGM has a leading position in Asia-Europe routes, the companies said.

Founded in 1978, CMA CGM has about 469 vessels working more than 200 shipping lanes, and will set up its regional head office in Singapore, according to Monday’s statement. The French company’s net income in the third quarter fell 75 percent to $51 million, according to its website.

Neptune Orient shares were halted from trading Monday. CMA CGM said it doesn’t plan to keep the Singapore company’s listing.

By selling Neptune Orient, Temasek is cutting its losses to focus on investments in consumer, financial services and life sciences and agriculture. Almost half of Temasek’s portfolio additions in the 12 months ended March 31 were in developing Asia, followed by North America and Europe, according to its annual report.

Sustained Losses

Neptune Orient posted its worst loss in six quarters for the July-to-September period, as efforts to raise rates failed during what’s usually the peak period ahead of year-end holidays. In May, the Singapore-based company sold its APL Logistics arm to Kintetsu World Express Inc. for $1.2 billion to raise cash.

Neptune Orient operated 89 vessels as of Sept. 18, according to its website. It has five container terminals in the U.S., Japan and Taiwan and has stakes in terminals in Vietnam, China and Thailand.

Global shipping companies had average operating margins of negative 1.8 percent in the third quarter, compared with a 3.4 percent profit margin a year earlier, according to Alphaliner. The combined volume of containers carried by the main liners shrank 1.5% during the third quarter, in what’s turning into the weakest year for the industry since 2009, Alphaliner said in its Dec. 1 newsletter.

Carriers’ operating margins are forecast to worsen further in the fourth quarter, with the majority expected to turn in negative results, according to Alphaliner.

The spot rate to haul a 20-foot standard container to Europe from Asia fell 50 percent to $275 for the week ended Dec. 4 as efforts by shipping companies to raise the levy failed, according to theShanghai Shipping Exchange. The levy for a 40-foot box to the U.S. West Coast dropped 4.8 percent to $891.