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Update: Hot stock: NOL jumps to highest since May on takeover talks

[SINGAPORE] Neptune Orient Lines jumped to the highest level in more than five months in Singapore trading after the company became a takeover target by two of the world's largest boxship operators.

Shares of Neptune Orient rose as much as 8.1 per cent to S$1.13, the highest intraday price since May 13, and traded at S$1.08 as of 10:04 am. The stock advanced 24 per cent this year before Monday, compared with an 11 per cent decline in Singapore's Straits Times Index.

Neptune Orient, South-east Asia's biggest container shipper, said on Saturday it's in separate preliminary talks with CMA CGM SA and AP Moeller-Maersk A/S on a possible sale of the company.

CMA CGM has made a preliminary offer for Neptune Orient and is conducting due diligence, though it hasn't been granted exclusivity, while discussions with Maersk are less advanced, people with knowledge of the matter said before the Asian company's announcement.

"NOL is a good asset," said Rahul Kapoor, a Singapore-based director at Drewry Maritime Services, a shipping research company. Still, "it's unlikely to turn profitable next year. 2016 could be even worse for the shipping industry."

Liners including Neptune Orient have been reducing costs, selling assets and cutting employees to stem years of losses as sluggish global commerce and overcapacity eat into shipping rates. Neptune Orient, which helped cement Singapore's status as a global trade hub, is attracting takeover interest after simplifying its structure this year by selling its US$1.2 billion logistics unit.

"NOL has a duty to assess all options to maximize shareholder value and improve its competitiveness," Neptune Orient said in a statement. The discussions are preliminary and there's no assurance that a definitive agreement will be reached, it said.

CMA CGM is in discussions on a "potential combination with Neptune Orient Lines," the Marseille-based company said on Monday. Maersk chief executive officer Nils Smedegaard Andersen said before Neptune Orient's announcement that "we will look at everything that comes up for sale in the market but our base strategy is to grow organically." Maersk hasn't commented after the Asian shipping company's confirmation.

A deal is unlikely to be struck soon, as the slumping shipping sector damps appetite for aggressive bidding, two of the people said. Temasek Holdings Pte, the Singapore state investment company that owns 67 per cent of Neptune Orient, may not be willing sell its stake at a low price, they said.

Acquiring Neptune Orient would help consolidate CMA CGM's No 3 position in container shipping as it competes with market leaders Maersk and Mediterranean Shipping Co.

Neptune Orient's APL container unit has a 2.7 per cent market share, while CMA CGM controls 8.9 per cent of the market, according to data from industry consultant Alphaliner. 

Companies are removing vessels on some trade routes to address overcapacity and help lift rates. Still, ships with a combined capacity of about 2.9 million 20-foot containers are due for delivery in 2015 and 2016, and that could mean another three years of overcapacity and financial pain, according to Drewry Shipping Consultants Ltd.

Spot rates to haul a 20-foot container to Europe from Asia fell 32 per cent to US$674 for the week ended Nov 6, according to the Shanghai Shipping Exchange. Rates fell to a four-month low of US$233 a box last month.