France's CMA sinks teeth into Temasek's NOL for S$3.4b

At S$1.30 a piece, analysts by and large deem the deal as fair, considering NOL's losses and the headwinds facing the sector


SINGAPORE'S Neptune Orient Lines (NOL) and France's CMA CGM threw a line in on the rare consolidation of a fragmented container shipping sector on Monday by unveiling a massive S$3.4 billion cash buyout, all in the name of scaling up.

After admitting to being in talks since December last year, the world's third-largest shipping container firm CMA CGM offered S$1.30 a piece for all of NOL in a pre-conditional voluntary general offer subject to anti-trust clearances in the US, European Union and China.

The deal, the largest in the container shipping space in years, will allow Temasek Holdings-controlled NOL, which has been bleeding red ink for four straight years, significant girth to scale up and compete with its bigger rivals.

"On a standalone basis, NOL would require significant capital investments to survive. This deal delivers scale to succeed in the current climate and ensure sustainable growth," said NOL group president and chief executive Ng Yat Chung at a press briefing.

At S$1.30 a piece - 6 per cent higher than NOL's close last Friday prior to Monday's trading halt - and 0.94 times over its last reported book value of S$1.38 per share, analysts by and large deemed the deal as fair, considering NOL's losses and the headwinds facing the sector.

"It's a very good deal . . . almost reaching the ceiling and it's fair given that equity valuations in the industry are depressed," said Rahul Kapoor, Singapore-based director of shipping research firm Drewry.

The price may be relatively fetching considering the gloomy backdrop of a sector hit by excess capacity and slipping freight rates and volumes, but for Temasek, which coughed up S$2.80 per share to raise its 30 per cent stake in NOL to 68.6 per cent in 2004, it would mean having to stomach losses on its investments.

"Temasek had good reason to accept this deal. It saw the writing on the wall and would have had to spend more money to support NOL. So, it decided to cut its losses," said Mr Kapoor.

In an announcement to the Singapore Exchange, NOL said its majority shareholder, Temasek's wholly- owned Lentor Investments, has irrevocably undertaken to tender all its shares into the offer.

As far as minority shareholders are concerned, the deal could be their "best hope to maximise value", said UOB Kay Hian.

This time, the Securities Investors Association of Singapore (SIAS), which recently slammed Singapore Airlines' privatisation bid for Tiger Airways as "not reasonable" for long-term shareholders, gave its tacit blessings. "Whilst it is sad to see another Singapore flagship company likely to be sold, I note the positive aspects in this offer," said SIAS president David Gerald, referring to the offer price for the fully-financed deal, among others.

Indeed, the deal's big plus is the decision by Marseille-based CMA CGM to use Singapore as a key hub in Asia by setting up a regional head office here.

"We understand the sensitivities of NOL as a Singapore asset and the importance of the maritime and shipping sector to Singapore," said Rodolphe Saade, CMA CGM's vice-chairman and son of the firm's founder and chairman Jacques Saade.

"We are committed to reinforce using this city as a regional head office and to significantly build volumes at PSA (International) by shifting business from other hubs," said Mr Saade at the joint media briefing here on Monday. This, industry observers reckon, could be a blow for Westports in Malaysia's Port Klang, the French line's current main South-east Asian hub.

But not necessarily. "We firmly believe that in view of the size of the combined entity, it makes a great deal of sense to have double hubbing in South-east Asia. It will allow us to increase our business in Singapore and keep a strong presence in Port Klang," said Mr Saade.

He also said that it is CMA CGM's hope that everyone in NOL's top management "stays on board" at the combined firm.

But for employees, layoffs could be on the cards considering that the combined entity will have a staff strength of just under 30,000 people and more than the 28,000 employed by rival and the world's second-largest line, Mediterranean Shipping Company.

"It's inevitable that some employees from both sides will be affected," said Mr Ng.

Both parties expect the pre-conditions to be fulfilled, followed by a firm offer from CMA CGM by the middle of next year. The long stop date for the offer is Dec 7, 2016.

"The deal is by no means done," said Mr Ng, pointing out that the deal hinges on getting the relevant anti- trust clearances.

Based on a preliminary recommendation, NOL's independent directors believe that the offer would enable NOL to realise "immediate and attractive value" for shareholders.

They also believe that the acquisition will provide the combined firm with the "strength, scale and resources" to compete in an industry where consolidation and investment in larger and modern vessels are changing the landscape.

If the deal pans out according to the plan's timeline, South-east Asia's largest container shipping firm NOL will be delisted next year - 35 years after it became Singapore's first wholly-owned government entity to be listed on SGX, at S$4 a share.



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