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Published: 10 July 2017
COSCO to add OOIL
Chinese carrier to lead purchase of OOIL for US$6.3 billion, creating the world’s third largest carrier group in the process.
In a statement to its customers COSCO SHIPPING LINES Co said that COSCO SHIPPING Holdings Co. Ltd, a majority owned subsidiary of the China COSCO SHIPPING Corporation Ltd., and Shanghai International Port (Group) Co., Ltd (SIPG) have made a pre-conditional voluntary general offer to all shareholders of Orient Overseas (International) Limited (“OOIL”). The offer price is HK$78.67 in case for each OOIL share.
The offer is subject to the necessary regulatory approvals, as well as approval from COSCO SHIPPING Holdings. It has, however, been approved by OOIL’s controlling shareholder group, the TUNG family, which controls around 70% of the company. Regulatory approvals are now being sought, and COSCO SHIPPING Lines and OOCL will continue to trade independently during the regulatory process.
The offer price is a 37.8% premium on the last closing price for OOIL shares, and an even larger 55.2% premium on the average price over the last 30 days. Based on the audited net asset value of HK56.20 per per OOIL share as 31 December, the offer is a 40% premium on the value of the company. OOIL booked a net loss after taxation of US$219M in 2016.
COSCO SHIPPING intends to finance the entire purchase price from debt financing, while SIPG plans to fund its 9.9% share through a mix of debt and revenues. A stock market E-Announcement from OOIL said UBS, the financial advisor to the Joint Offerors, is satisfied that sufficient funds are available to COSCO SHIPPING to conclude the deal. The position with SIPG is less clear.
It was stated that SIPG “will proceed with the Offer unless it cannot obtain SAFE approval for the relevant funds to be remitted from the PRC to pay for its consideration under the Offer.” If that approval can note be obtained, COSCO Shipping Lines has undertaken to complete the offer in full as if it were the sole offeror. If for some reason the deal does not close at all COSCO SHIPPING will pay OOIL US$253M.
COSCO SHIPPING Lines also said COSCO SHIPPING Holdings “intends to retain the listing status of OOIL” and that both COSCO SHIPPING Lines and OOCL will continue to operate under their respective brands after the deal concludes. The Offerors intend to keep 25% of OOIL shares publicly traded, and do not intend to exercise any rights to compulsorily acquire shares.
COSCO SHIPPING Lines is said to be on a mission to make acquisitions and overtake Maersk as the largest container carrier, and this deal puts it well on the way. “After the completion of the Offer, the combined COSCO SHIPPING Lines and OOIL will become one of the world's leading container shipping companies with more than 400 vessels and capacity exceeding 2.9 million TEUs including order book. In addition to this increase in scale, both parties will benefit from access to a combined and complementary global sales network and customer base, shipping network optimization, as well as advanced IT systems, to further drive synergies and operational efficiency”, the OOIL announcement stated.
If the deal concludes successfully COSCO SHIPPING Lines has pledged to keep OOIL based in Hong Kong, at least initially.“We respect OOIL’s management team and its expertise, not to mention its people, brand and culture,” said Mr. Wan Min, Chairman of COSCO SHIPPING Holdings. “Our company remains committed to enhancing Hong Kong as an international shipping centre. Following completion, we will continue to invest and strengthen our industry leadership, providing a more extensive platform for the employees of OOIL to excel.”
Existing compensation and benefits at OOIL will be retained and jobs in Hong Kong have been guaranteed for two years. “Besides that, the Joint Offerors intend to maintain OOIL’s global headquarter functions and presence in Hong Kong, and utilize the advantage of both companies’ global network to contribute to the economic prosperity of the territory and development of Hong Kong as an international shipping center”.
Mr. Andy Tung, Executive Director of OOIL, commented: “We are proud of the business we have built and the people who have been building it. This decision has been carefully considered and we believe it helps ensure the future success of OOIL. We are confident that COSCO SHIPPING Holdings is the right partner for us.” The board of OOIL has set up an “Independent Board Committee” to advise shareholders in connection with the offer.