It’s not only liner companies like CMA CGM and APL or COSCO and China Shipping that are combining.
In November, Triton Container International Ltd. and TAL International Group announced they would merge to become the world’s largest container-leasing company, with about 4.8 million TEUs of revenue-earning assets worth nearly $8.7 billion, or representing about a quarter of all leased containers.
(The most recent Drewry census of containers says there were about 36.57 million TEUs at the end of 2014, having increased in size by 6.2 percent during 2014.) Around half of containers are owned by lessors and half by shipping lines.
The new company, to be known as Triton International Ltd., will be formed as an all-stock merge of equals. Triton shareholders will own 55 percent of the combined company and TAL shareholders 45 percent. The TAL shareholders will also receive a special dividend of 54 cents per share when the deal closes. The deal is expected to close in the first half of 2016.
The two companies are similar in size.
Triton was founded in 1980 and has been majority owned since 2011 by the private equity firms Warburg Pincus and Vestar Capital Partners. It holds about 2.4 million TEUs and revenue-earning assets of $4.6 billion.
TAL was founded in 1963 and has been a New York Stock Exchange-listed company since 2005. It also has a fleet of about 2.4 million TEUs and revenue-earning assets of about $4.1 billion.
The two companies said they expected the transaction to be “highly accretive” to net income per share by about 30 percent when savings are fully realized.
They expect to be able to realize $40 million per year in selling, general and administrative “synergies, by aligning infrastructure and creating a best-in-class systems environment” by the end of this year.
The two companies said they will offer customers a broad range of container types across all major geographic locations.
“Consummation of the transaction will not require any incremental leverage and existing debt facilities at Triton and TAL International will largely remain in place,” the companies said.
“We look forward to bringing together our similar cultures of dependability, high quality customer service and teamwork,” said Ed Schneider, co-founder and chairman of Triton.
Following the completion of the transaction, Brian Sondey, TAL International’s president and chief executive officer, will serve as CEO of the new company, and Simon Vernon, Triton’s president and CEO, will serve as president.
Triton shareholders holding sufficient shares have agreed to vote in favor of the transaction and TAL shareholders will vote on the deal.
After the deal is completed, the next largest container-leasing companies will be Textainer with an 18 percent share, Seaco with a 12 percent share, Florens with an 11 percent share, Seacube with a 7 percent share, and CAI with a 6 percent share.
As part of the planned merger of COSCO and China Shipping, COSCO Pacific announced in December it has agreed to divest itself of Florens to a Hong Kong subsidiary of China Shipping.
In a research note on CAI issued after the TAL-Triton deal was announced, investment bank BB&T said “we believe CAI remains well positioned to leverage potential new box demand as the containership build-out cycle continues in the coming years.”
BB&T asked “Could we see further industry consolidation? In short order, yes. With two of the largest industry players merging to create a market leader with nearly 25 percent market share… [we] would not be surprised to see additional consolidation within the industry, particularly as valuations appear depressed and industry participants look for scale.”
While container lessors saw a dramatic dip in the leasing of their fleets during the recent recession—from over 95 percent utilization in early 2008 to little more than 85 percent in late 2009—BB&T said this is not a repeat of that period.
“There are several industry trends that could lead to a more favorable leasing environment over the medium- and long-term.” They include:
- 3.5 million TEUs of new containership capacity slated to be delivered over the next three years should spur increased box demand as those ships enter service.
- The large capital requirements associated with those ship orders “limit the liner companies’ ability and/or willingness to invest in new boxes.” The bank noted lessors have accounted for 60 to 65 percent of all box purchases over the past several years vs. the historical average of about 50 percent.
- “Factory inventory levels remain balanced as production levels have moderated. In other words, we’re encouraged by the pause in manufacturing as lessors are showing restraint in placing new orders, which we believe should help support current industry utilization levels as box capacity remains relatively tight.”
Observers of the container-leasing industry often make the point that because containers only have to be ordered a few months in advance, the business is far less cyclical than that for container shipping in general where container carriers may order ships years before they are actually delivered only to have them arrive when demand is slack.
