COSCO Shipping Holdings Co Ltd (601919.SS) has offered to buy Orient Overseas International Ltd (OOIL) (0316.HK) for HK$49.23 billion ($6.30 billion), in a deal that will see the mainland China group become the world's third largest container liner.
The proposed deal is the latest in wave of mergers and acquisitions in global container shipping that has left the top six shipping lines controlling 63 percent of the market. OOIL's shipping subsidiary, OOCL, has a 2.7 percent slice of the market.
COSCO Shipping is offering HK$78.67 for each OOIL share, a premium of 37.8 percent over OOIL's closing price of HK$57.10 on its last trading date, the companies said in filings with the Hong Kong and Shanghai stock exchanges on Sunday.
OOIL's controlling shareholders had on Friday agreed to sell their 68.7 percent stake at that price to COSCO Shipping, which is making the offer with Shanghai Port International Group (SIPG) (600018.SS) that will take 9.9 percent, they said.
COSCO Shipping will have a fleet of more than 400 vessels and capacity exceeding 2.9 million TEUs (twenty-foot equivalent units) should the deal go through, it said.
This would make it the world's third largest container shipping line after Denmark's Maersk Line MAERSKb.Co and Switzerland's Mediterranean Shipping Company (MSC), according to Singapore-based transport research firm Crucial Perspective. It is currently the fourth-largest behind France's CMA CGM [CMACG.UL].
"COSCO Shipping Holdings believes this acquisition will enable both COSCO Shipping Lines and OOIL to realize synergies, enhance profitability and achieve sustainable growth in the long term," the Chinese group said in the statement.
OOCL was founded in 1969 by Hong Kong shipping magnate Tung Chao-yung, whose son, Tung Chee-chen is chairman, president and chief executive of the company, while several Tung children are in senior management roles.
The two companies in January dismissed merger rumors but analysts said that OOCL was still a likely bid target due to its long profitable history and relatively low leverage.
Both firms are also part of the "Ocean Alliance" partnership, which also includes CMA CGM and Evergreen Marine Corp (2603.TW), that was formed last year to take on the rival grouping of Maersk Line and MSC.
COSCO Shipping itself was created from the state-driven merger of former rivals China Ocean Shipping (Group) Company and China Shipping Group. Shares in the firm, which flagged a return to first-half profit last week, have been suspended since May 16.
It said it would finance its part of the deal through external debt financing and that the transaction was still subject to anti-trust reviews by Chinese and U.S. government authorities.
The companies said that they plan to retain OOIL's listing status and maintain its global headquarters and presence in Hong Kong to support the city as a global maritime center.
Should the deal fall through, COSCO Shipping has also agreed to pay OOIL a reverse termination fee of $253 million, they said
UBS AG Hong Kong Branch (UBSG.S) is advising COSCO Shipping and SIPG, while J.P. Morgan Securities (Asia Pacific) Limited (JPM.N) is advising OOIL.