China's state-owned Cosco Shipping Holdings Co. has bid $6.3 billion to buy Orient Overseas International Ltd., a move that would create the biggest shipping company moving boxes to the North American continent from Asia.
The combined shipping giant would beat Copenhagen-based A.P. Moller-Maersk A/S and France's CMA CGM SA in total North American shipments. The takeover, announced Sunday in Hong Kong, would also create the biggest sea-box carrier through the Pacific Ocean.
The consolidation may help raise container rates on the Americas route -- the second-busiest in the world -- a critical piece in the survival of the shipping industry that has been battling slumping charges and overcapacity. Earlier this year, Maersk and Hyundai Merchant Marine Co. said that they managed to get higher fees from customers on their annual rate-negotiation talks on the trans-Pacific routes. Moving goods to Europe from Asia is the world's biggest shipping trade route.
The Cosco-Orient Overseas combination would have the capacity to move a weekly average of 77,208 containers between Asia and North America, based on end-May data from Alphaliner, a shipping data provider. In the Asia-Europe trade lane, the combination will become only the third biggest.
Shares of Orient Overseas surged 20 percent to about $9.22, on Monday in Hong Kong, the biggest gain in eight years. Cosco shares jumped 5.4 percent after Friday's 11 percent advance.
The mainland shipping company will receive bridge loans from Bank of China to help fund the purchase, Chief Financial Officer Deng Huangjun told reporters in Hong Kong on Monday. Officials also said Cosco has no plans for further acquisitions and has no timeline on when it expects to get all the regulatory approvals needed to complete the transaction.
"There's a very good chance we will get all the regulatory approvals because we always comply with all rules," Cosco's Executive Director Xu Zunwu said at a news conference in the city.
Cosco's offer to buy Orient Overseas was a 49 percent premium, based on the average 20-day trading price before the announcement. That is the biggest for a major container-shipping deal since 1997, the year Hong Kong passed from British hands to China. In the same year, Singapore's Neptune Orient Lines Ltd. bought APL Ltd. for $833 million, offering a premium of 57 percent.
The controlling shareholders of Orient Overseas have accepted Cosco's offer at $10.06 a share. The family of Tung Chee-hwa, the first chief executive of Hong Kong, holds about 69 percent of the shipping line.
The deal was announced a little more than a week after China's President Xi Jinping visited Hong Kong as the former British colony marked the 20th anniversary of the handover. Tung, currently a vice chairman of China's top political advisory body, Chinese People's Political Consultative Conference, was hand-picked by China in 1997 for the top job in the financial hub and has been advising the central leadership on foreign policies especially China-U.S. relations.
The purchase could also stoke concerns the city's role as a major shipping and financial hub is diminishing amid further inroads by state-owned companies and the rise of other centers on the mainland such as Shenzhen, Guangzhou and Shanghai.
"Rather than being one shiny spot, Hong Kong is now more seen as part of the Pearl River delta," said Yu Zhanfu, a Beijing-based principal at Roland Berger Strategy Consultants. "For the companies being acquired, there's more to gain than to lose. They will benefit from having closer access to the broader market in the mainland." Mainland Chinese companies can also learn from the city-based firms that have thrived in a market-based environment, he said.
China and the U.S. have been negotiating over trade as President Donald Trump pushes the Asian nation to cede greater access to American exporters to help address a $347 billion deficit. The so-called 100-day talks scheduled to end July 16 have been marred by North Korea's testing of an intercontinental ballistic missile last week.
Global trade, measured by volume of goods and services, is set to expand 3.8 percent this year and accelerate to 3.9 percent in 2018, according to projections by the International Monetary Fund. Global trade probably rose 2.2 percent last year, the slowest pace since 2009.
Cosco currently has a market share of 8.4 percent while Orient Overseas has 3.2 percent, according to Alphaliner. Their combined 11.6 percent share would make the merged entity the third-biggest container-shipping company, overtaking CMA CGM with 11.2 percent, according to the shipping data provider. The enlarged company will operate more than 400 vessels with capacity exceeding 2.9 million twenty-foot equivalent units, including order book.
Business on 07/11/2017