French transportation firm CMA CGM SA said Monday it has made a $2.4 billion bid for Singapore-based Neptune Orient Lines (NOL) to try to cement its own position as a global leader in container shipping.
The proposed cash acquisition, announced in a filing with the Singapore Exchange where NOL is listed, values it at around Sg$3.4 billion ($2.4 billion).
Marseille-based CMA CGM, the world's third largest container shipping firm, is offering Sg$1.30 for each NOL share, 6.1 percent more than Friday’s closing price of S$1.225.
State-linked investment firm Temasek Holdings said it would sell its nearly 67 percent stake in NOL, a move that would trigger a mandatory takeover offer for the firm's remaining shares.
The offer however needs to fulfil some preconditions, mainly the approval of anti-trust authorities, within a year after Monday's announcement, the filing said.
"We are supportive of this transaction as it presents NOL with an opportunity to join a leading player with an extensive global presence and solid operational record," said Tan Chong Lee, head of portfolio management at Temasek.
He said the merger of the two companies "will create a leading shipping company" worldwide.
CMA CGM said the acquisition of NOL would enable it to "cement its position among the global leaders in the container shipping industry" with a capacity of 2.4 million TEUs (twenty-foot equivalent unit containers), a market share of about 11.5 percent, a fleet of 563 vessels and a combined turnover of about $22 billion.
CMA CGM said it "attaches significant importance to Singapore and the region for the redeployment of its strategy in Asia and intends to maintain high transit volume in Singapore".
CMA CGM currently has a global market share of 8.8 percent with 469 vessels. Last year, the group handled more than 12 million TEUs and generated up to $16.74 billion in revenues.
Bloomberg News said an acquisition of NOL would strengthen the French company's position as it competes with market leaders A.P. Moeller-Maersk A/S and Mediterranean Shipping Co.
A capacity glut, falling demand and lower rates are prompting shipping firms to explore mergers and acquisitions, Bloomberg said.
"It's a great price for NOL shareholders to achieve given the current industry outlook," said Rahul Kapoor, Singapore-based director for equity research at Drewry Maritime Services.
"The global industry valuations remain depressed and for NOL to achieve closer to book value at sale is commendable," he told AFP in an email.
"For CMA, it's an opportunistic move. CMA will see its debt rise and credit matrix worsen. We expect marginal synergies initially and expect CMA's earnings under pressure initially from the acquisition as underlying markets remain weak in the short to medium term."
NOL was formed in December 1968, three years after Singapore's independence, and played a major role in its transformation into a global transhipment hub.
Initially a wholly owned government entity, it went public in 1981 to fund its global expansion drive although Temasek held the majority of the shares.
In 1997 NOL bought US-based container shipping firm APL, formerly the American Presidents Line, gaining access to major terminal hubs in Asia and North America.
NOL divested from its tanker businesses in 2003 to focus on container shipping and logistics.
However, the company has in recent years been racking up losses due to sluggish global trade and lower freight rates. Last month it reported a net loss of $96 million for the third quarter, widening from a loss of $23 million in the same period the year before.
NOL this year sold its logistics business -- APL Logistics Ltd. -- to Japan's Kintetsu World Express Inc. for $1.2 billion.