Tuesday, June 20, 2017

COSCO BUYING OOCL

Cosco Nears $4 Billion Takeover of Orient Overseas

Deal between shipping-container operators could come as early as July


State-owned Cosco Group’s Cosco Shipping unit is the world’s fourth largest container operator with an 8.5% market share.
State-owned Cosco Group’s Cosco Shipping unit is the world’s fourth largest container operator with an 8.5% market share. Photo: Ben Nelms/Bloomberg News
Chinese conglomerate Cosco Group is in advanced discussions to acquire smaller shipping rival Orient Overseas Container Line Co. for at least $4 billion in a deal that could be reached as early as July, people familiar with the matter said.
“OOCL’s owning family is warming up to the idea of a sale,” one of those people said. “It is down to the price and we may get an announcement as early as next month.”
State-owned Cosco Group’s Cosco Shipping unit is the world’s fourth largest container operator with an 8.5% market share. Orient Overseas, which is based in Hong Kong, is in seventh place with a 3.3% share. The Journal reported that Cosco was preparing a bid earlier this year.
Container shipping, which moves the majority of the world’s manufactured goods, is a $1 trillion a year industry, but individual players are struggling to stay profitable in one of the most severe down cycles in 30 years.
The industry was shaken last August when Korea major Hanjin Shipping Co. went bust, prompting a wave of consolidation that has left about a dozen major carriers grouped into three global alliances. Cosco and Orient Overseas are members of the same alliance.
Shares in Cosco Shipping were suspended on the Shanghai Stock Exchange on May 17 pending an announcement on a “plan for material assets.” Shares of Orient Overseas (International) Ltd. , a parent company that also owns real estate and other assets in Hong Kong, jumped 8% Tuesday in Hong Kong trading.
“OOCL is one of the few midsize carriers that managed to stay firm during the downturn, but it’s too small to survive on it’s own in the long term,” said Lars Jensen, chief executive of Copenhagen-based SeaIntelligence Consulting. “Its ties with Cosco go back decades and they are part of the same alliance with Cosco. A marriage makes good sense.”
Cosco, based in Beijing, stands to benefit from Orient Overseas’ sales team and young fleet, which data provider VesselsValue estimates is worth around $1.5 billion. Cosco merged its container-shipping assets with China Shipping (Group) in December 2015. Earlier this year it secured a $26 billion multiyear financing deal with China Development Bank.
OOCL is 69% owned by Hong Kong’s Tung family, which has deep ties to Beijing. Tung Chee-Hwa, the company’s former top executive, was appointed Hong Kong’s first governor after it was handed to China by England in 1997. His son, Andy Tung, is the company’s current chief executive.
Some analysts say the buyout could be announced on July 1, when Chinese President Xi Jinping visits Hong Kong to celebrate the 20th anniversary of the British colony’s return to China.
Write to Costas Paris at costas.paris@wsj.com