Cosco Agrees to Buy Orient Overseas for $6.3 Billion in Cash

Jul 16, 2017 7:50 pm ET

(Bloomberg) -- China’s state-owned Cosco Shipping Holdings Ltd. and a unit offered to buy Orient Overseas International Ltd., Hong Kong’s biggest container shipping line, to create the world’s third-largest box carrier in a deal valued at about $6.3 billion.

Cosco and Shanghai International Port Group Co. will pay HK$78.67 in cash to all shareholders of Orient Overseas by way of a “pre-conditional voluntary general offer,” they said in an exchange filing Sunday. If the offer is accepted in full, the two will have to pay about HK$49.2 billion ($6.3 billion) to close the transaction, they said.

A successful deal would create an entity bigger than France’s CMA CGM SA, adding to a string of consolidation the industry has seen to help fight overcapacity and depressed freight rates. Last year, following the collapse of South Korea’s Hanjin Shipping Co., three Japanese rivals announced a mega merger, while Hamburg Sud was taken over by A.P. Moller-Maersk A/S.

Former Hong Kong Chief Executive Tung Chee-hwa’s family controls Orient Overseas International with about 69 percent holding. Shares of the company have rallied almost 90 percent this year in Hong Kong, boosting its market value to $4.8 billion. The advance compares with a 15 percent gain in the benchmark Hang Seng Index.

“This decision has been carefully considered and we believe it helps ensure the future success of OOIL,” Andy Tung, chief executive officer of Orient Overseas, said in a statement separately. “We are confident that Cosco Shipping Holdings is the right partner for us.”

On completion of the deal, Cosco Shipping will hold 90.1 percent of Orient Overseas, while Shanghai International Port will hold 9.9 percent. The buyers plan to keep the shares of Orient Overseas listed after the closing of the offer and commit to retain all employees and their benefits, they said.

UBS Group AG, the financial adviser to the buyers “is satisfied that sufficient financial resources are available” to satisfy full acceptance of the offer, according to the filing.

Asian container lines are set for further consolidation in 2017 as firms join forces to cut costs and improve efficiency, the heads of Maersk and Hyundai Merchant Marine Co. have said. The Wall Street Journal reported the deal earlier.

--With assistance from Dong Lyu

©2017 Bloomberg L.P.