China's COSCO to buy Orient Overseas for $6.3 billion
Shares in both China's state-owned shipping company, COSCO, and Orient Overseas (International) Ltd. surged Monday after COSCO agreed to buy its smaller rival for 6.3 billion.
The merger will form a new Asian shipping giant, helping COSCO compete as a wave of consolidation in the industry creates a handful of huge global competitors. By Monday, COSCO's shares traded in Hong Kong had jumped 6.1 per cent while Orient Overseas' shares soared 20.8 per cent.
COSCO, with 311 container ships, ranks among the global industry's top five competitors. Orient Overseas, controlled by the family of former Hong Kong Chief Executive Tung Chee- Hwa, is in the top 10. The transaction is subject to antitrust review by Chinese, European and US authorities, according to a filing with the Hong Kong Stock Exchange.
The filing said COSCO will pay 10.07 per share (HK 78.67), a premium of 38 percent over Orient's Friday share price on the Hong Kong Exchange. The total price tag for the deal will be 6.3 billion (HK 49.2 billion).
OOIL's controlling shareholders had on Friday agreed to sell their 68.7 per cent stake at that price to COSCO Shipping, which is making the offer with Shanghai Port International Group (SIPG) (600018.SS) that will take 9.9 per cent.
COSCO Shipping will have a fleet of more than 400 vessels and capacity exceeding 2.9 million TEUs (twenty-foot equivalent units) should the deal go through. This would make it the world's third largest container shipping line after Denmark's Maersk Line MAERSKb.Co and Switzerland's Mediterranean Shipping Company (MSC), according to Singapore-based transport research firm Crucial Perspective. It is currently the fourth-largest behind France's CMA CGM.
The companies said that they plan to retain OOIL's listing status and maintain its global headquarters and presence in Hong Kong to support the city as a global maritime center.
The shipping industry has been struggling amid sluggish global trade and falling rates. Danish shipping firm Maersk acquired Hamburg Sud, a German company, in December, while French shipper CMA CGM bought Singapore-based Neptune Orient Lines last year.