Shares of Neptune Orient Lines (NOL) jumped more than 4 per cent yesterday, after the largest container shipping firm in South-east Asia confirmed it is in exclusive talks to be bought by France's CMA CGM.
The stock, which shot up as much as 5.8 per cent to $1.185 at 1.50pm, closed at $1.17 - its highest since April.
NOL said last Saturday that its single largest shareholder, Lentor Investments - a unit of state investment fund Temasek Holdings - has entered into an exclusivity agreement with CMA CGM on a "preconditional voluntary offer".
But it added that there is no assurance the talks will result in a definitive transaction.
CMA CGM, the third largest container shipping firm worldwide, has until Dec 7 to complete due diligence on NOL and negotiate definitive terms for the potential offer.
Industry watchers told The Straits Times that the buyout of the $3.04 billion NOL, if successful, would take place against a backdrop where consolidation is "long overdue".
Mr Kasper Hansel, a shipping analyst with SeaIntel Maritime Analysis, noted that container lines have been grappling with severe overcapacity amid shrinking demand.
"All the global carriers are losing money or not making as much as they could be. So consolidation would be a very good move for the industry," he said.
Mr Timothy Ross, head of regional transportation research at Credit Suisse Investment Banking, said the acquisition would allow CMA CGM to "dominate the trans-Pacific lanes" with a 12 per cent market share - ahead of Maersk Line's 9 per cent.
The group would also be able to entrench its No. 3 position globally with an overall market share of 12.3 per cent, while closing the gap with Mediterranean Shipping Company, the world's No. 2, he noted.
This comes as the shipping giant faces mounting pressure from China, where two of the largest state- owned shipping firms - Cosco Group and China Shipping Group Co - are in advanced merger talks.
CMA CGM, privately owned and controlled by the Marseilles-based Saade family, runs a fleet of 467 vessels transporting 12.1 million standard containers annually.
It has less of a foothold in the trans-Pacific and intra-Asia lanes - where NOL's strengths lie.
"They'd buy because they believe the long-term prospects for NOL are good, relative to its current valuation," said Mr Ross.
"You buy when the blood is on the streets and blood is most definitely running on the streets right now, given the weakness in the industry."
NOL is trading at about 0.7 or 0.8 times its book value of $1.38 as at the end of the third quarter.
OCBC Investment Research analyst Eugene Chua said CMA CGM may be willing to shell out a premium for NOL, while Temasek, which owns 66.7 per cent of the company, is "most unlikely to sell it below book value given the renewed fleet of vessels".
"Nonetheless, without assurance, we advise investors to be cautious of the potential downside (about 14 per cent), should the deal fall through, given the poor industry outlook," said Mr Chua, who maintains a "hold" rating on the stock, with a fair value of 96 cents.