Cosco Shipping is readying a bid of more than $4bn to take over Hong Kong’s Orient Overseas Container Line (OOCL), the Wall Street Journal (WSJ) is reporting. WSJ journalist Costas Paris has been behind most of the scoops of liner mergers in the past 18 months.
The report tallies with numerous sources who have tipped off Splash about the negotiations which have been ongoing for many months.
If sealed, the merger of the two would consummate a business marriage more than two decades in the making.
The acquisition of OOCL would take state-backed Cosco Shipping – itself a recent merger between Cosco and China Shipping’s boxlines – just above France’s CMA CGM into third place in the global league of liners with a fleet in excess of 2.2m teu, cementing its position as Asia’s largest containerline. CMA CGM, Cosco Shipping, OOCL and Evergreen are all members of the Ocean Alliance, due to launch on April 1.
The parent of Cosco Shipping has just concluded the largest ship finance deal in history, securing a $26bn credit line with China Development Bank.
Spokespeople for both OOCL and Cosco Shipping refused to confirm the merger news.
It was in the mid-1980s that Beijing bailed out nearly bankrupt OOCL. In 1997, the line’s second leader, Tung Chee-hwa was appointed by China to lead Hong Kong after the handover from the UK. A couple of years after that Cosco bought OOCL’s revolutionary software IRIS-2.
Splash columnist Charles De Trenck, who has followed the fortunes of Cosco and OOCL closer than most over the past two decades, commented: “Cosco is a logical buyer, though I would have preferred CMA CGM in terms of comparative management ability. It works out to a similar result.”
De Trenck explained that when Cosco was up for buying OOCL a few years ago, the thinking was that it would be akin to a reverse take over, especially given IRIS-2 and the backend software OOCL sold Cosco.
“This is great news for those who own shares in OOCL’s parent and who bought shares up till even a couple of weeks ago. And this is ultimately good for the Tung family and container shipping’s further consolidation,” De Trenck added.
Shares in OOCL’s parent have climbed around 30% in the past month on the Hong Kong Stock Exchange, closing yesterday at HK$42.10. The Tung family control 69% of the shares.
Lars Jensen, a regular Splash contributor and founder of SeaIntelligence Consulting, said the acquisition made sense.
“If Cosco and OOCL are merged, that will further cement the foundation for the future reality in global liner shipping – namely that there will be room for only a few very large players,” Jensen said, adding: “It will bring Cosco up as the third largest carrier, ahead of CMA CGM, and it will solve the longer-term problem for OOCL, namely that they on their own simply do not have the scale to compete with the largest global players. It will serve to strengthen the Ocean Alliance. Even though their combined tonnage is, of course, unchanged, there would only be three partners to agree on network design instead of four – and all else being equal, fewer partners lead to a smoother decision making process.
Additionally, if Cosco also takes over CargoSmart, this would potentially provide Cosco with an alternative strong digitisation platform with which to compete on the rapidly changing market for shipping ecommerce.”
Andy Lane from CTI Consultancy was less keen about the deal however.
“I do not see a burning need for OOIL [the parent] to divest OOCL,” Lane told Splash.
“This is a brand synonymous with high quality, and it remains one of the more profitable lines – it appears extremely well run, and I have always been impressed by the highly competent and professional approach of OOCL’s executives. The issue of scale is kind of bridged through Ocean Alliance membership,” he argued.
Lane maintained the value of OOCL as an acquisition target is not so much its hardware, but its people and processes.
“If the acquirer is one which lacks an ability to innovate and improve, as it merely relies on state hand-outs, I would believe this value will be destroyed almost immediately. I think it would be a very sad day for OOCL’s loyal shippers, of whom many will surely look elsewhere,” Lane concluded.
An official announcement from OOCL is likely soon.
