Cosco Shipping Offers $6.3 Billion to Buy Orient Overseas

Posted by Richard Strauss

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Cosco Shipping Holdings offered $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 a share in cash, a 31 percent premium over the stock’s last closing price. The Tung family, which founded Orient Overseas Container Linein 1969, has accepted the offer, which still needs regulatory approvals and consent from Cosco’s investors. Orient Overseas surged as much as 25 percent in Hong Kong, the biggest intraday gain in eight years, while Cosco jumped as much as 8.1 percent.

The combined entity would surpass France’s CMA CGM SA and move closer to A.P. 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 U.S. 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 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.