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OOIL chairman: Merger with NOL unlikely

Integrating the two large companies would be too challenging; more M&A deals expected among smaller firms
Wednesday, April 22, 2015 - 05:50
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Mr Tung says although 10 years ago a merger would have made more sense, today's shipping alliances have helped shipping companies cut costs via sharing of assets.

Singapore

CONSOLIDATION has been happening in the shipping industry for years but the pace of mergers and acquisitions (M&A) is likely to pick up among smaller players in the near future, the chairman of a major Hong Kong shipping group said, while pouring cold water on rumours that his firm might merge with Neptune Orient Lines (NOL), South-east Asia's biggest container line.

Orient Overseas International Ltd (OOIL) chairman Tung Chee-chen, known in the industry as CC Tung, said in an interview in Singapore on Tuesday that a takeover of NOL is "possible . . . I don't think anybody rules anything out today". However, he added that a merger was "unlikely" because integrating the two large companies would be too challenging.

More M&A deals could instead happen among smaller firms seeking economies of scale, which would find integration easier due to their size, he said, speaking on the sidelines of the annual Singapore Maritime Week, which runs until Friday.

Mr Tung also said that since OOIL and NOL are already working together as part of the G6 shipping alliance, that has already furnished some of the benefits that a merger or acquisition would provide. He added that although 10 years ago a merger would have made more sense, today's shipping alliances have helped shipping companies cut costs via sharing of assets.

Even so, Mr Tung said that if OOIL were to merge with any other shipping company, the other members of the G6 alliance would be more likely targets compared with firms outside the alliance. "Outside G6, less chance. Within G6 we know each other."

The G6 shipping alliance, formed in late 2011, consists of container carriers NOL's APL, OOIL's Orient Overseas Container Line (OOCL), Hapag-Lloyd, Hyundai Merchant Marine, NYK and Mitsui OSK Lines. The six shipping companies have been adjusting their businesses so that all are "relatively compatible with each other", he added.

OOIL runs one of the world's biggest container carriers. The Hong Kong-listed company is controlled by the family of Tung Chee-hwa, the territory's first leader after China resumed control of the former British colony in 1997.

Some analysts have said that OOIL would be a natural partner for NOL, according to a Bloomberg report in late March that came after Goldman Sachs upgraded NOL's stock from "neutral" to "buy" with a 12-month target price of S$1.30, sparking a fresh wave of takeover speculation. NOL rose two cents to close at S$1.135 on Tuesday.

OOIL's Mr Tung will be delivering a talk about the container shipping industry at the ninth Singapore Maritime Lecture on Wednesday at the Fullerton Hotel as part of the Singapore Maritime Week.

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