Neptune Orient Lines (NOL) has entered into exclusive talks with CMA CGM, the world's third-largest shipping company, over a potential buyout of the Singapore container liner from its majority owner, Temasek Holdings.
NOL, in a statement on Saturday, said that its single largest shareholder, Lentor Investments, a Temasek unit, has entered into an exclusivity agreement with France's CMA for the acquisition of NOL by way of a "preconditional voluntary offer".
CMA has until 11.59pm local time on Dec 7 to "complete customary due diligence on NOL, and its subsidiaries, and negotiate the definitive agreements to be entered into in relation to the offer".
NEED FOR SCALE
...such a combination would contribute to the consolidation of the container shipping industry, at a time when scale is more critical than ever. ’’
CMA CGM in a statement yesterday on the effects of a combination should an agreement be reached
NOL, however, said there is no assurance that the talks would lead to a definitive offer. When contacted yesterday, NOL said it has "nothing to add" to the announcement.
NOL earlier this month flagged it was in talks with CMA and Denmark's AP Moller-Maersk, the world's largest container shipping group, over its possible sale.
Separately, CMA said in a statement yesterday that should these discussions lead to an agreement, a combination of the two companies would contribute to the consolidation of the container shipping industry at a time when scale is more critical than ever.
"It would further reinforce CMA CGM as a global force in container shipping, leveraging the strong geographic and operational complementarity of both groups," it said.
Maersk declined to comment when asked yesterday if it is still in the running to take over NOL, or on talk it had made an offer to buy NOL for about US$2 billion (S$2.8 billion).
Market participants say the acquisition of NOL, which is valued at about $2.9 billion based on Friday's closing share price, is seen as a positive for the beleaguered shipping firm, which posted a wider net loss of US$96 million in the third quarter, and recently spun off its logistics business for US$1.2 billion to raise capital amid a protracted slump in the shipping industry.
"The offer by CMA to acquire NOL shows a trend toward industry consolidation and this is necessary to restore profitability in the container shipping market," remisier Alvin Yong said.
"For investors, they should continue to look for undervalued companies with the potential for corporate actions to unlock value."
Traders say the announcement is expected to have a positive impact on NOL's share price at the opening bell today.
Shares of NOL, which is 67 per cent owned by Temasek, closed at $1.12 last Friday. The company has been the subject of two queries by the Singapore Exchange in the past two months after buyout talk sent NOL's share price soaring by about 20 per cent so far this year.
NOL, in its latest earnings report, said: "The absence of the traditional third-quarter peak season in Europe and North America led to severe freight rates erosion in major trade lanes. We continued to make good progress in managing costs. Unfortunately, this was more than offset by weak global demand and huge contraction in freight rates.
"Freight rates are expected to remain under pressure due to persistent overcapacity and weak trade growth," it added.
Acquiring NOL may help consolidate CMA's Number 3 position in container shipping, especially as China Ocean Shipping Group and China Shipping Group enter advanced talks to merge.
CMA faces pressure to expand as the potential merger of the two state-owned Chinese shipping giants could reduce the French company's market share in Asia.