Tung shipping firm shares rise 20pc on takeoverBusiness | Dominique Nguy and Reuters 11 Jul 2017
Cosco Shipping (1919) chief financial officer Deng Huangjun said yesterday the takeover of Orient Overseas (International) (0316) will be financed by a bridge loan from the Bank of China.
On Sunday, state-backed Cosco, together with Shanghai International Port (Group), offered to buy OOIL, a shipping company controlled by the family of former Hong Kong chief executive Tung Chee-hwa, in a deal worth HK$49.2 billion.
The deal values each OOIL shares at HK$78.67, representing a 31.1 percent premium to its Friday close - a price analysts said was high, given the industry was just emerging from a prolonged slump.
However, Cosco Shipping general manager Xu Junwu called the acquisition price reasonable, and said the company looks to benefit from economies of scale after completion of the deal.
Xu said the price was set with reference to market valuation, as well as case studies on privatization of Hong Kong listed companies. Cosco shares rose 5.4 percent to HK$4.29 yesterday, while shares of OOIL jumped 20 percent to close at HK$72.
The offer comes as the Chinese government is outspoken over its desire to raise its profile in global shipping, which dovetails with its Belt and Road initiative aimed at increasing its influence over supply chains from Asia to Europe.
The Wall Street Journal reported that negotiations between COSCO and OOIL had gone on for several months. It reported that a source involved in the negotiations said the Tung family didn't want to sell its 69 percent majority stake in OOIL at first, but due to increased pressure from the mainland government, the family agreed to sell after a reasonable price was proposed.
The deal would see Cosco Shipping becoming the world's third-biggest container shipper, behind only Denmark's Maersk Line and Switzerland's Mediterranean Shipping Co.
Xu said mergers and acquisitions in the shipping industry is a global trend, and that the company will first focus on market development upon completion of the deal.
He said the company currently has no other merger and acquisition plans. "The merger would be complementary as OOIL is strong in Transpacific and Intra-Asia trade, and Cosco has strong China domestic trade," said Samson Lo, head of Asia mergers-and-acquisitions at UBS, which is advising Cosco Shipping.
OOIL commands less than 3 percent of the global container shipping market, but could help Cosco gain exposure to the United States, industry insiders said.
Xu said the acquisition will see Cosco's market share in America rise from 11 percent to 18 percent.
Morgan Stanley said the acquisition is positive towards the shipping industry, as it will increase concentration, and the companies can have more autonomy in setting prices, thus reducing risks of further price falls.