Under the terms of the deal, Chinese conglomerate COSCO Shipping will own 90.1 percent of Orient Overseas International Ltd., parent of Hong Kong-based container carrier OOCL, while Shanghai International Port Group will hold the remaining 9.9 percent.
Chinese state-run conglomerate COSCO Shipping Holdings and Shanghai International Port (Group) Co., Ltd. have made a joint offer for Orient Overseas International Ltd., parent of Hong Kong-based container carrier OOCL, valued at roughly $6.3 billion, according to a statement from the firms released early Sunday morning.
Under the terms of the deal, COSCO and SIPG will pay $78.67 Hong Kong (U.S. $10.07) per share in cash for all outstanding OOIL stock. Assuming all shareholders tender their shares under the offer, COSCO will own 90.1 percent of OOIL upon completion, while SIPG will hold the remaining 9.9 percent share.
The share price represents a 31 percent premium on the last closing price for OOIL, which may already have been slightly inflated. Despite consistent denials and “no comment” statements from OOIL regarding speculation COSCO could purchase the company, its stock has been surging since mid-April, closing on Friday at HK$60.00 per share, the highest price in five years.
According to the statement from COSCO and SIPG, the controlling shareholder of OOIL, the Tung family, which started its first shipping service in 1947 (the company was officially renamed OOCL in 1969) and currently holds 68.7 percent interest in the parent, has “irrevocably undertaken to accept the offer.”
With OOCL’s fleet, COSCO SHIPPING Lines, a subsidiary of COSCO SHIPPING Holdings, will sport a containership fleet of more than 400 vessels with capacity exceeding 2.9 million TEUs including orderbook, the companies said.
According to ocean carrier schedule and capacity database BlueWater Reporting, COSCO and OOCL are currently the fourth and seventh largest container carriers worldwide in terms of operating fleet capacity. Based on present figures, the combined entity would operate vessels with an aggregate capacity of 2.21 million TEUs, squeaking into third place, just ahead of the recently merged CMA CGM and APL with 2.19 million TEUs.
“We respect OOIL’s management team and its expertise, not to mention its people, brand and culture,” Wan Min, Chairman of COSCO SHIPPING Holdings, said of the acquisition. “Our company remains committed to enhancing Hong Kong as an international shipping center. Following completion, we will continue to invest and strengthen our industry leadership, providing a more extensive platform for the employees of OOIL to excel.”
“We are proud of the business we have built and the people who have been building it,” added OOIL Executive Director Andy Tung. “This decision has been carefully considered and we believe it helps ensure the future success of OOIL. We are confident that COSCO SHIPPING Holdings is the right partner for us.”
The purchase, which will still require approval from both shareholders and the relevant regulatory authorities before becoming official, comes after a whirlwind couple of years for consolidation in the ocean shipping industry that was kicked off, ironically enough, by the former COSCO merging with fellow state-run carrier China Shipping (CSCL) at the behest of the Chinese government.
Since then, CMA CGM has acquired APL parent Neptune Orient Lines, Hapag-Lloyd has merged with United Arab Shipping Co. (UASC), Maersk Line purchased north-south specialist carrier Hamburg Sud, and Japan’s “Big 3” carriers – NYK Line, Mistui O.S.K. Line (MOL) and “K” Line – announced plans to form a container shipping joint venture called Ocean Network Express (ONE) that will begin operations in 2018.
As a result of these deals, and the bankruptcy of then-seventh largest carrier Hanjin Shipping, the vast majority of the container shipping industry, at least in the major east-west trades, will now be controlled by just 11 carriers operating in three alliances. COSCO and OOCL both belong to the OCEAN Alliance, which commenced operations officially on April 1, along with CMA CGM/APL and Evergreen Line; the 2M Alliance consists of Maersk Line and Mediterranean Shipping Co. (MSC), with South Korea’s Hyundai Merchant Marine (HMM) purchasing slots though not a full member; and THE Alliance counts Hapag-Lloyd/UASC, Yang Ming, and the three Japanese carriers as members.
COSCO said it and SIPG “intend to maintain OOIL’s listed status following close of the offer, and are committed to retaining the existing compensation and benefit system at OOIL and will not terminate the employment of any employee at OOIL as a result of this transaction for at least 24 months after the close of the offer.”
In addition, the company said it plans to keep OOIL’s global headquarters in Hong Kong, and “utilize the advantage of both companies’ global network to contribute to the economic prosperity of the territory and development of Hong Kong as an international shipping center.”
UBS AG is serving as financial advisor to the COSCO and SIPG, with Paul Hastings as the legal advisor to COSCO SHIPPING Holdings and UBS Securities the independent financial adviser to COSCO Shipping Holdings. J.P. Morgan will serve as financial advisor and Slaughter and May as the legal adviser to OOIL.
NEWS FLASH: COSCO offers $6.3b for OOIL
