Analysts give thumbs up for NOL buyout

CMA CGM’s offer represents a 49 per cent premium over NOL’s last unaffected traded share price. CIMB Research analyst Raymond Yap said that NOL stakeholders should accept the offer, adding that “without this deal, we expect NOL’s share price
CMA CGM’s offer represents a 49 per cent premium over NOL’s last unaffected traded share price. CIMB Research analyst Raymond Yap said that NOL stakeholders should accept the offer, adding that “without this deal, we expect NOL’s share price to collapse”.PHOTO: BLOOMBERG

They see $3.38b offer by French shipping giant CMA CGM as fair

Analysts have given the buyout offer for Neptune Orient Lines (NOL) the thumbs up, adding that the container shipping firm's acquisition by France's CMA CGM is likely a done deal.

Family-owned shipping giant CMA CGM on Monday put a whopping $3.38 billion, or $1.30 a share, cash offer on the table to buy NOL.

It represents a 49 per cent premium over NOL's last unaffected traded share price of 87.5 cents on July 16. NOL shares slipped half a cent or 0.4 per cent to $1.22 yesterday.

Its controlling shareholder Temasek Holdings has agreed to tender all of its 67 per cent stake.

Singapore-based Mr Rahul Kapoor, director of shipping research firm Drewry Maritime Services, told The Straits Times that NOL has suffered from sliding volumes and freight rates in recent years.

"The 2015 volume total is on course to be the lowest since 2009, while average freight rates are destined to be the lowest in at least a decade," he said. "It's a toxic combination that the management has failed to arrest, and Temasek appears to have seen the writing on the wall that a turnaround is not imminent."

Given that CMA CGM's offer marks a "very good price... anything more than that would have been hard to get", Mr Kapoor added.

NOL in October reported an 84 per cent plunge in earnings to a net loss of US$96 million (S$135 million) for its third quarter to Sept 18. The latest Temasek Review shows that economic value added was a negative US$599 million for the financial year 2014. The five-year total shareholder return was negative 12.5 per cent.

OCBC Investment Research analyst Eugene Chua voiced similar sentiments, noting that while the offer price implies a valuation 0.96 times of NOL's book value, it is a "fair" one, given the muted outlook of the global container shipping industry.

He said in a note it was likely Temasek had willingly accepted the offer at a slight discount on hopes that the deal would bring greater economic benefit to Singapore.

CMA CGM on Monday pledged to "increase its commitment" to the Republic and reinforce its position as a leading maritime hub by setting up its regional headquarters here and bringing in more container volume to the ports.

Still, Temasek is set to take a big hit. In 2004, the firm lifted its stake to more than 50 per cent, even launching a surprise $2.8 billion cash offer for 70 per cent of NOL it did not own at $2.80 a share.

CIMB Research analyst Raymond Yap said in a note he expects the regulatory authorities to give the acquisition the go-ahead, as "it will not disturb the competitive position of the alliances too greatly".

He added that NOL stakeholders should accept the offer. "CMA CGM is the only credible buyer for NOL and, without this deal, we expect NOL's share price to collapse."

Shareholder Lim How Teck, who was NOL's deputy chief executive and chief financial officer in the 1990s, said it is possible that selling NOL two or three years down the road would have fetched better prices, given that the industry is currently in the trough of the cycle.

"As part of the old guard that helped to grow the company for so many years, it's sad that NOL is going to disappear," he said. "But there's also the worry that if they don't sell now, there may not be a suitor later. At least the price is fair."

The deal will go through next year, pending anti-trust clearances from the United States, the European Union and China.

A version of this article appeared in the print edition of The Straits Times on December 09, 2015, with the headline 'Analysts give thumbs up for NOL buyout'. Print Edition | Subscribe