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BUSINESS LOGISTICS REPORT
China’s Cosco Agrees to Buy Shipping Rival OOCL
Deal that could be valued around $6 billion will make Cosco the world’s third-biggest container carrier
By Costas Paris
Updated July 8, 2017 10:14 a.m. ET
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Chinese conglomerate Cosco Group has agreed in principle to buy smaller shipping rival Orient Overseas Container Line Co. in deal that could be valued around $6 billion, two people involved in the talks said.
The takeover, which could be announced as soon as Monday, will make Cosco the world’s third-biggest container carrier after Denmark’s Maersk Line and Swiss-based Mediterranean Shipping Co. It will also create the second-biggest mover of U.S. imports with a 10.8% market share, according to the Journal of Commerce.
The two companies have been in talks for months, but were stuck over pricing. Cosco was willing to pay just north of $4 billion for the shipping company, but the deal will likely include other assets of the shipping line’s parent, Orient Overseas (International) Ltd. 0316 5.08% , the people said.
The shipping unit owned or leased 96 vessels as of December and operates container terminals at ports in Taiwan and Long Beach, Calif. The parent company also owns investments in real estate in China and Hong Kong and an office tower in the financial district of New York City.
“The extent of the parent’s assets that will be sold beyond the shipping concern will be ironed out over the weekend,” one of the people said.
The Journal reported last month that the two sides were in advanced negotiations.
In a message to staff on Friday, which was read to the Journal, Orient Overseas Chief Executive Andy Tung said the deal would take around six months to be approved by global regulators and that Cosco wouldn’t delist the parent company. “More will be revealed on Monday,” the message said.
Container shipping, which moves the majority of the world’s manufactured goods, is a $1 trillion a year industry, but individual players are struggling to stay profitable in one of the most severe down cycles in 30 years. Both Cosco and Orient Overseas posted losses last year.
The industry was shaken last August when Korea major Hanjin Shipping Co. went bust, prompting a wave of consolidation that has left about a dozen major carriers grouped into three global alliances. Cosco and Orient Overseas are members of the same alliance.
Shares in Cosco Shipping have been suspended on the Shanghai Stock Exchange since May 17 pending an announcement on a “plan for material assets.” Shares of Orient Overseas (International) are up 23% over the past month and closed at 60 Hong Kong dollars on Friday.
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