Cosco Shipping Holdings Ltd. has agreed to buy Orient Overseas International Ltd. for $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, will pay shareholders of Hong Kong’s No. 1 box mover HK$78.67 a share, a 31 percent premium over the stock’s closing price July 7, it said in an exchange filing Sunday. The Tung family, which controls Orient Overseas, has accepted the offer that still needs regulatory approvals and consent from Cosco’s investors.
The combined entity will 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 strong presence on routes from the Far East to Australia and to the U.S. The company’s operational efficiency has long been admired by outsiders as well.”
Scale Of Operation
The combined entity will operate more than 400 vessels with capacity exceeding 2.9 million twenty-foot equivalent units, including order book. Cosco currently 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 family controls Orient Overseas International with about 69 percent holding. Shares of the company have rallied almost 90 percent this year in Hong Kong, boosting its market value to $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 will have to pay a total of about HK$49.2 billion ($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,” Andy Tung, chief executive officer of Orient Overseas, said in a statement separately. “We are confident that Cosco Shipping Holdings is the right partner for us.”
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