Cosco Offers $6.3 Billion To Buy Orient Overseas

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COSCO Shipping Holdings Co Ltd has offered to buy Orient Overseas International Ltd (OOIL) for HK$49.23 billion ($6.30 billion), in a deal that will set the mainland China group to become the world’s third largest container liner.

The offer comes as China’s government is outspoken over its desire to increase its profile in global shipping, which merges with its Belt and Road initiative aimed at increasing its influence over supply chains from Asia to Europe.

State-owned Cosco will pay shareholders of Orient Overseas HK$78.67 a share in cash. The Tung family, which founded Orient Overseas Container Line in 1969, has accepted the offer, which still needs regulatory approvals and consent from Cosco’s investors.

As the deal goes through, COSCO Shipping will become the world’s third-largest container shipping line after Denmark’s Maersk Line and Switzerland’s Mediterranean Shipping Company (MSC). Container lines from Denmark to Japan have pursued acquisitions as too many ships and companies chasing the same trade has led to a collapse in freight rates and burgeoning losses, reasons that pushed Hanjin Shipping Co. of Korea to file a bankruptcy last year.

“COSCO Shipping Holdings believes this acquisition will enable both COSCO Shipping Lines and OOIL to realize synergies, enhance profitability and achieve sustainable growth in the long term,” the Chinese group said in the statement.

The enlarged company will operate more than 400 vessels with capacity exceeding 2.9 million twenty-foot equivalent units, including order book. Cosco currently has a market share of 8.4 percent, while Orient Overseas has 3.2 percent. Their combined 11.6 percent share would make the merged entity the third-biggest container-shipping company, overtaking CMA CGM with 11.2 percent, according to the shipping data provider.

“This looks like a happy ending for both parties,” said Han Ning, China director for Drewry Shipping Consultants Ltd. “Cosco can benefit from OOCL’s strong presence on routes from the Far East to Australia and to the U.S. The company’s operational efficiency has long been admired by outsiders as well.”

Cosco stock rose as much as 6% to its highest in almost two years HK$ 4.29 on Monday after the offer was made, while OOIL shares rose over 20% on Monday as well.

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