A tie-up between Singapore’s Neptune Orient Lines, parent of liner company APL, and CMA CGM of France would combine the third and thirteen largest container carriers worldwide.
A subsidiary of the Singapore’s sovereign wealth fund Temasek, owner of Neptune Orient Lines (NOL), has entered in to exclusive talks with French ocean carrier CMA CGM about a possible purchase of NOL, according to a statement from the company Saturday.
CMA CGM confirmed the exclusive arrangement on Sunday in a press release.
The announcement comes two weeks after NOL said it was “in preliminary discussions with CMA CGM SA and A.P. Møller-Maersk A/S with respect to a potential acquisition.”
Such an acquisition would result in a combination of CMA CGM, the third largest container carrier worldwide, with NOL’s subsidiary liner company APL, the thirteenth largest container carrier.
According to ocean liner schedule and capacity database BlueWater Reporting, CMA CGM’s 462-ship fleet has a combined capacity of 1,845,178 TEU, while APL has 100 ships with a capacity of 625,427 TEUs. The adjacent chart, built with data from BlueWater Reporting’s Carrier Ranking Report, compares the combined current capacity of APL and CMA CGM with that of the other top ocean carriers.
Maersk Line and MSC would retain the number one and number two spots on the list with 2,816,356 TEUs and 2,677,624 TEUs of operating fleet capacity, respectively, but the merged APL/CMA CGM group would immediately put itself into the discussion of the largest ocean carriers with 2,473,079 TEUs. By comparison, fourth-largest carrier Hapag-Lloyd is the only other carrier with more than 1 million TEUs of overall fleet capacity at 1,017,118 TEUs. The list is rounded out by Taiwan’s Evergreen Line (983,456 TEUs), and China-owned COSCO (858,832 TEUs) and CSCL (748,867 TEUs), which recently began merger discussions of their own.
NOL said its single largest shareholder, Lentor Investments Pte. Ltd. (a wholly-owned subsidiary of Temasek Holdings (Private) Limited), entered into an exclusivity agreement with CMA CGM respect to a potential acquisition of NOL.
“NOL and Lentor have granted CMA CGM exclusivity until 11.59 p.m.(Singapore time) on December 7, 2015 to complete customary confirmatory due diligence on NOL and its subsidiaries and negotiate the definitive agreements to be entered into in relation to the offer,” the company said in a press release.
“There is no assurance that such negotiation will result in any definitive agreement or transaction or that any offer for NOL will be made,” NOL cautioned.
CMA CGM said Sunday, “Should these discussions lead to an agreement, such a combination would contribute to the consolidation of the container shipping industry, at a time when scale is more critical than ever. It would further reinforce CMA CGM as a global force in container shipping, leveraging the strong geographic and operational complementarity of both groups.”
CMA CGM was also careful to note, “No agreement has yet been reached and no assurance can be given that these discussions will lead to a definitive agreement.”
A Maersk spokesman said Monday that the company did not “wish to speculate nor comment directly/indirectly on the announcement made by NOL this Saturday.”
Lars Jensen, chief executive officer and partners at SeaIntelligence Consulting, said he was not surprised that Maersk was no longer part of the discussions.
“I don’t see Maersk needing APL as much as CMA CGM does,” said Jensen. “I thought the only reason this might be of interest to Maersk was if the price was so fantastically low that you basically bought the ships at a good value and nothing but that, then it would be a very good deal for Maersk, but not a very good deal for Temasek.”
Secondly, he said if CMA CGM bids for NOL, Maersk would “have to come into the playing field to at least try to make sure CMA CGM pays more than they otherwise would have.”
CMA CGM “already has a sizeable share on Asia-Europe and APL does not have a very large share on Asia-Europe, where it is the other way around on the transpacific,” according to Jensen.
He said it was clear that APL’s routes in the transpacific are of most interest to CMA CGM and “this will be a way for CMA CGM to rapidly, hopefully, get a larger share in the transpacific,” though he also noted for such an acquisition to be a success, CMA CGM will have to retain APL’s customers.
Jensen also noted that APL has a “range of new vessels that would be well suited to be large scale vessels for the transpacific.”
Ebsen Poulsson, president of the Singapore Shipping Association said in an interview on CNBC Monday that “this is a negotiated deal between a winning buyer and a winning seller, but no doubt the price will reflect that we are in a difficult period. But having said that, NOL does have certain trades and certain segments that will be of interest to CMA CGM and for that reason it will probably be a reasonable deal at the end of the day.”
“There is definitely a consolidation trend going on,” said Poulsson, who also thought APL’s routes in the transpacific trade were of most interest to CMA CGM
In addition to the merger talks between CMA CGM and NOL, COSCO and China Shipping are reportedly also in talks to merge at the behest of the Chinese government, leading analysts to speculate on further consolidation in the industry going forward.
Earlier this month, TransAtlantic AB said it had reached an agreement to sell its container operations to X-Press Feeders.
“At a difficult moment of the cycle, consolidation is obviously a way for these players to gain greater market share and greater strength toward the customer,” said Poulsson, who is a director of X-Press Feeders.
APL, formerly known as American President Lines, is one of the few container shipping companies that offers U.S.-flag liner service. NOL did not mention why Maersk was no longer part of the discussions, but one possible complication of any combination with the Danish container giant would have been the fact that Maersk is also a major U.S.-flag liner operator, meaning the deal would have led to more concentration in U.S.-flag shipping.
