NOL buyout: Don’t hope for huge gain
The clock is rapidly ticking down on crucial talks in a potentially multibillion-dollar deal for France's CMA CGM to buy Singapore icon Neptune Orient Lines (NOL).
The deadline to complete due diligence on NOL and negotiate a definitive offer is 11.59pm Monday, Singapore time. Senior executives of the two shipping lines have been hunkering down in France and Singapore as the deadline looms larger.
The firms announced last month they are in exclusive discussions for CMA CGM, the world's third-largest carrier, to buy the loss-making NOL. If successful, the deal could be one of the biggest acquisitions in the industry.
NOL shares advanced ahead of the big day, rising two cents or 1.7 per cent, to $1.225, yesterday. This is about 0.9 times the firm's book value of $1.38 a share as at the end of the third quarter to Sept 30.
Analysts are mixed over whether the deal will come off, given the poor industry outlook, with valuations at an all-time low.
LET IT GO
I suppose we'd have liked to see NOL be more successful, that would have been nice. But if we're not able to turn it around after trying for so many years, perhaps it's time to let go.
MR SONG SENG WUN, CIMB Private Banking economist
But Reuters on Thursday quoted sources saying that the family-controlled CMA CGM has obtained firm commitments from banks to finance the deal - a sign it is serious about the bid. NOL's market value based on its share price stood at $3.19 billion as at yesterday.
The potential sale of NOL, founded in 1968 as Singapore's national shipping line, has raised concern among market watchers about what it would mean for the nation's ports, a key economic pillar.
Details of any possible deal are not known, but for NOL at least, the transaction may not be purely commercial. NOL's largest shareholder is Singapore investment firm Temasek Holdings, with a 67 per cent stake. Analysts say this means that any deal will likely be structured to ensure that Singapore's interests - especially its position as a major shipping hub - remain well-protected.
The mechanisms built into the agreement could, for instance, include safeguards to ensure that shipping tonnage is not diverted elsewhere, that jobs here are safe, and that Singapore remains a port of choice for global lines.
Any deal is likely to be all-cash rather than a share swop, as CMA CGM is privately owned.
Some would lament the loss of yet another national icon to foreign buyers, along with the likes of Raffles Hotel, Tiger Beer and Robinsons. But CIMB Private Banking economist Song Seng Wun noted: "We tend to not be very sentimental about who owns what, as long as it ultimately entrenches Singapore's role in the global economy.
"I suppose we'd have liked to see NOL be more successful, that would have been nice. But if we're not able to turn it around after trying for so many years, perhaps it's time to let go."
CMA CGM, for its part, is far from buying a worthless asset. NOL is the largest container shipping company in South-east Asia, with 87 vessels and an annual tonnage of more than 2.8 million forty-foot equivalent units.
"There are some things NOL has got right," said Mr Andy Lane, a partner at CTI Consultancy. "APL (the brand which NOL's ships operate under) does have a very strong presence and market share in Asia and the United States. When combined with the CMA CGM presence, additional scale is created and that will bring about cost efficiencies for the merged entity."
Still, NOL shareholders may want to keep their expectations in check, as generous offers going up to twice the firm's book value are unrealistic in today's shipping environment.
The industry has been hit hard by slowing global demand, coupled with the severe capacity glut, and freight rates are at their lowest levels in years.
In other words, the heady days of NOL shares soaring beyond the $4 level - as was the case in 2007 - are likely over.