French container shipping giant CMA CGM is to buy Singapore's Neptune Orient Lines for $2.4 billion, making its biggest-ever acquisition to help it to ride out a severe market downturn.
The takeover, which the companies expect to proceed in mid-2016 following anti-trust approvals, would cement family-owned CMA CGM's spot as the world's third-largest container shipping line by handing it market leadership on busy trans-Pacific routes.
The acquisition of state-controlled Neptune crowns a recovery for CMA CGM and its founding Saade family, which suffered deep financial troubles in the 2009 shipping slump that led it to bring in minority investors from outside the group.
The shipping industry has been battered by overcapacity, slow economic growth and weak freight rates, prompting bigger firms to embark on vessel-sharing alliances and to look at buying out smaller companies.
NOL has struggled in the downturn, reporting four consecutive years of losses up to the year ended December 2014.
"We operate in a very fragmented world with many players and the industry as a whole suffers from volatile freight rates," CMA CGM Vice Chairman Rodolphe Saade said at a news conference with NOL in Singapore.
"We believe that scale is more critical than ever to ensure profitable growth."
Marseille-based CMA CGM offered S$1.30 a share in cash, 6 percent above NOL's last closing stock price and valuing the deal at S$3.4 billion ($2.4 billion). NOL's majority owner, Singapore state investor Temasek, has agreed to tender all of its stake of nearly 67 percent.
Temasek had paid S$2.80 a share in 2004 when it increased its stake in NOL to 68 percent from 29 percent.
CMA CGM will make a mandatory cash offer for the remaining shares from minority shareholders that include BlackRock.
"With few others having the resources or inclination, we suspect that this is not just the best offer for NOL stock but the only one," Credit Suisse analysts
said in a note.
Saades at the Helm
CMA CGM said its biggest-ever acquisition would create a group with combined revenue of $22 billion and 563 vessels.
The new entity's worldwide market share would reach 11.5 percent, putting CMA CGM closer to its larger rivals Maersk Line and MSC, and give it a lead over companies operating between Asian and North America, according to estimates from shipping consultancy Alphaliner.
Rodolphe Saade said he started talks with NOL a year ago, and his piloting of the deal underlines his growing stature in the group founded by his father Jacques in 1978 after he left his country of birth, Lebanon, due to the civil war.
CMA CGM has secured a $1.65 billion loan from a pool of banks led by BNP Paribas
, HSBC and JPMorgan , to help finance the deal. This will add to its existing debt of $5 billion that will also be boosted by NOL's debt of $2.9 billion.
The French group said its geographical fit with NOL would bring significant savings, which it declined to put a figure on. It also set a target of $1 billion in divestments once it had reviewed assets at both companies, allowing it to bring its gearing ratio back below 0.8 after 18-24 months.
CMA CGM will eventually consider listing its shares, possibly in Singapore, Saade said. It has previously considered a listing as a possibility if second-largest shareholder, Turkish group Yildirim, decides to sell its convertible bonds.
Credit rating agency Standard & Poor's revised its outlook for CMA CGM to negative following the announcement of the deal but reiterated its 'B+' rating for the firm.
The NOL acquisition would be Singapore's biggest inbound deal since 2013, when companies linked to Thai tycoon Charoen Sirivadhanabhakdi took control of conglomerate Fraser and Neave for $11 billion.
($1 = 1.4002 Singapore dollars)
(By Saeed Azhar, Rujun Shen and Gus Trompiz; Editing by Muralikumar Anantharaman and Jane Merriman)