Friday, January 13, 2017

OOCL -- TEMPTING TAKEOVER TARGET

Why OOCL will tempt many

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So no surprise that talk of Orient Overseas Container Line (OOCL) being bought out dominated hits this week here at Splash.
Widely considered to be one of the few genuine jewels in the shrinking box crown, the wily Tung family, who own 69% of the shares in its parent, are well aware that they will be able to command a very significant price for their company, whose history stretches back to 1947.
What does a prospective buyer get from buying OOCL? A decent fleet – some 575,000 slots of good, young tonnage. Some of the most advanced IT set ups of any liner that allows the Hong Kong line to drive efficiency better than most and stay in the black while red ink washes all around it. Very well entrenched sales teams across the world. A brand that customers equate with quality.
Is now a good time for them to cash in their chips? I’d say, yes. Its veteran chairman, CC Tung, admitted last year that there would be no supply/demand balance through to the end of the decade. Moreover, its size is no longer seen as big enough to compete – although I would caution it is well shielded size-wise by its choice of alliance partners this April when it launches the Ocean Alliance with CMA CGM, Cosco Shipping and Evergreen.
Of note, the Tungs privately controlled bulk shipping line, Island Navigation, which had been quiet for a long time, got into gear last year concluding many deals, perhaps with an eye to ensuring the family remains invested in shipping in a sizeable way post-OOCL.
So much of the smart money has now gone on France’s CMA CGM snapping up OOCL. However, today we got an official denial from Marseille. Who else is there? Well, Cosco Shipping has just sealed this week the largest ship finance deal in the history of shipping – $26bn could buy OOCL many times over. Moreover, remember the Tungs are heavily invested in Beijing politics.
We know Maersk is still in acquisitive mode, and OOCL would actually fit neatly into Maersk’s setup. But perhaps swallowing OOCL so quickly after Hamburg Sud might result in indigestion.
MSC, which has grown organically throughout its history, eschewing mergers, might be tempted, if only to keep pace with its blue partner in 2M and keep CMA CGM at bay.
The rumour mill is on overdrive – as is the share price of OOCL’s parent. January has kicked on from 2016’s exciting, unprecedented round of container consolidation. Just where and when will it end?