Friday, May 20, 2016

HAPAG-LLOYD UASC MERGER TALKS GOING WELL

Hapag-Lloyd’s Merger Talks With UASC ‘Will Bring Summer Marriage'

People familiar with the matter say talks to create $9 billion company are progressing well


A towboat tows the Hapag-Lloyd container ship ‘Hamburg Express’ as it arrives at the Port of Hamburg on August 15, 2012. Hapag-Lloyd is currently in talks to create the world’s fifth-biggest shipping container operator. ENLARGE
A towboat tows the Hapag-Lloyd container ship ‘Hamburg Express’ as it arrives at the Port of Hamburg on August 15, 2012. Hapag-Lloyd is currently in talks to create the world’s fifth-biggest shipping container operator. Photo: Reuters
LONDON—Merger talks between German container-shipping operator Hapag-Lloyd AG HLAG 2.18 % and Dubai-based rival United Arab Shipping Co. are progressing well, and the companies will likely combine by the end of the summer, two people involved in the matter said.
“It’s a win-win situation and talks are ticking along quite well,” one of the people said. “Unless there is a last-minute snag, we will have a marriage by August.”
Hapag-Lloyd and UASC said in April they were in preliminary talks based on valuations that would give Hapag shareholders 72% ownership of any combined firm, and holders of UASC the rest. They are currently the world’s sixth- and 10th-biggest container operators in terms of capacity, and a merged entity would be the fifth-biggest.

“The combined company will be worth around $9 billion,” the second person said.
The talks come amid a wave of consolidation sweeping the container-shipping industry, which is squeezed by overcapacity, slowing global growth and plummeting freight rates. Amid those turbulent waters, a number of big companies in recent years have combined forces to cut costs and increase competitiveness.
At the same time, operators have been scrambling to form alliances, broad operational partnerships that have allowed them to cut costs without a full-blown merger or takeover.
Most of the world’s top dozen operators are part of alliances, the most recent of which includes Hapag-Lloyd and was completed earlier this month. UASC and debt-ridden Korean line Hyundai Merchant Marine Co. 011200 0.00 % were the only two left out of the new groupings.
Their exclusion raised questions about their ability to compete effectively in the world’s most lucrative ocean trade routes.
“UASC’s choice is to pump billions to build up its own fleet and network in a largely futile attempt to compete globally on its own, become a regional Middle East carrier or merge with Hapag-Lloyd and be part of the global alliance that the Germans lead,” said Lars Jensen, chief executive of Copenhagen-based SeaIntelligence Consulting. “UASC’s holders have always wanted a global presence, so the merger with Hapag-Lloyd is really the only option.”
        
UASC is owned by the governments of Qatar, Saudi Arabia, Kuwait and the United Arab Emirates. Qatar and Saudi Arabia are the biggest holders, with stakes of 51% and 35%, respectively.
The company will hold an extraordinary shareholders meeting June 2 to decide on the merger. The first person said he expects “unanimous backing of the merger plan.”
In late 2014 Hapag-Lloyd merged its container operations with Chilean carrier Compañía Sud Americana de Vapores SA VAPORES -0.22 % . CSAV owns 31.4% of Hapag-Lloyd, with the German city of Hamburg and Kuehne Maritime GmbH, a private maritime investment company, holding around 20% each.
A merger would provide Hapag-Lloyd access to UASC’s six Triple-Es, the world’s biggest container ships, which have become the weapon of choice in an arms race among the world’s major operators. The ships, which can cost up to $150 million each, can move more than 18,000 containers and are outfitted with efficient engines that can save on fuel.
UASC primarily operates in the Asia-to-Europe trade route, and a merger with Hapag would give it wider access to the trans-Atlantic and trans-Pacific loops.
Write to Costas Paris at costas.paris@wsj.com