Cosco Shipping offers US$6.3b to buy Orient Overseas

[SINGAPORE] Cosco Shipping Holdings Co offered US$6.3 billion to acquire the container carrier controlled by former Hong Kong Chief Executive Tung Chee-hwa's family in a deal that would catapult the mainland Chinese group into world's third-largest shipping line.

State-owned Cosco will pay shareholders of Orient Overseas International Ltd, Hong Kong's No 1 box mover, HK$78.67 (S$13.97) a share in cash, a 31 per cent premium over the stock's last closing price, according to exchange filings on Sunday. The Tung family, which founded Orient Overseas Container Line in 1969, has accepted the offer, which still needs regulatory approvals and consent from Cosco's investors.

The combined entity would surpass France's CMA CGM SA and move closer to AP Moller-Maersk A/S and Mediterranean Shipping Co by capacity. Container lines from Denmark to Japan have pursued acquisitions as too many ships and companies chasing the same trade has led to a collapse in freight rates and burgeoning losses, reasons that pushed Hanjin Shipping Co of Korea into bankruptcy last year.

"This looks like a happy ending for both parties," said Han Ning, China director for Drewry Shipping Consultants Ltd. "Cosco can benefit from OOCL's strong presence on routes from the Far East to Australia and to the US. The company's operational efficiency has long been admired by outsiders as well." The enlarged company will operate more than 400 vessels with capacity exceeding 2.9 million twenty-foot equivalent units, including order book. Cosco currently has a market share of 8.4 per cent while Orient Overseas has 3.2 per cent, according to Alphaliner. Their combined 11.6 per cent share would make the merged entity the third-biggest container-shipping company, overtaking CMA CGM with 11.2 per cent, according to the shipping data provider.

UBS Group AG advised the buyers, while JPMorgan Chase & Co worked with Orient Overseas.

Mr Tung's family controls Orient Overseas International with about 69 per cent holding. Shares of the company have rallied almost 90 per cent this year in Hong Kong, compared with a 15 per cent gain in the benchmark Hang Seng Index.

If the offer is accepted by the rest of the shareholders, Cosco and its unit will have to pay a total of about HK$49.2 billion to close the transaction, they said.

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