■ We advise NOL’s minority shareholders to accept CMA CGM’s offer of S$1.30/share as it is almost certain to succeed. Without the offer, NOL’s shares will languish.
■ Container shipping is likely to do poorly in the near future, barring short cyclical bounces, and NOL is unprepared for the competitive future without 20k teu ships.
■ We maintain Hold, and upgrade the target price to the offer price of S$1.30. Our previous target was based on trough P/BV valuation of 0.76x (1 s.d. below average).
■ If the acquisition gains the approval of the US, EU and Chinese regulators (expected by mid-2016), the deal should be completed by August 2016.
CMA CGM to purchase NOL
CMA CGM plans to make a voluntary offer for 100% of NOL. With Temasek giving an irrevocable undertaking to tender its entire 66.8% stake, CMA CGM will easily clear the acceptance condition of 50% + 1 share. Hence, the acquisition is basically a done deal, subject to regulatory approvals by the US, EU and China, expected by mid-2016. We expect the acquisition to clear the regulators and be completed around Aug 2016.
Regulatory authorities should give the go-ahead
We expect the regulatory authorities to give the go-ahead for the CMA CGM acquisition of NOL, as it will not disturb the competitive position of the alliances too greatly. The Ocean Three’s (O3) capacity share of the transpacific trade will rise from 14.5% currently to 18.8% with NOL inside, while its share of the Asia-Europe trade will rise from 21% to 24.9% - still below the 30% threshold that would attract EU regulatory concern.
CSCL’s potential departure would shrink the O3 again
If CSCL ultimately leaves the O3 alliance to join compatriot COSCON in the CKYHE alliance, the O3’s capacity share of the transpacific and Asia-Europe trades would fall down to 14.6% and 19.7%, respectively, which is not too dissimilar to the current capacity share position of the alliance. The long and short of this, is that we do not believe that the regulators will have anything against CMA CGM’s purchase of NOL, and the deal will almost certainly proceed.
NOL minorities will not get anything better
CMA CGM is the only credible buyer for NOL, and without this deal, we expect NOL’s share price to collapse to a 20-30% discount to below its book value of S$1.35/share, not just because of the persistent weakness of the container shipping industry, but also because without 20,000 teu ships, NOL is unprepared for the future. Although we had expected a minimum offer price at its book value, the S$1.30 offer is close enough. As such, we believe minorities will most likely accept CMA CGM’s offer.
CMA CGM likely to own 100% of NOL
CMA CGM will compulsorily acquire all remaining shares of NOL and delist NOL if it succeeds in obtaining at least 90% of NOL shares, which will happen if more than 70% of minorities tender their shares to CMA CGM when it launches the offer in mid-2016 (estimated) on the assumption that it obtains the necessary regulatory approvals by that time. We think that Temasek’s support for the transaction is a powerful encouragement for minorities to accept the offer. (Read Report)
Read Related Reports
1) Neptune Orient Lines - CMA takeover: Waiting game has ended by Credit Suisse Asia Pacific Equity Research, published on 8 December 2015
2) Neptune Orient Lines - Proposed acquisition by CMA CGM by DBS Group Research, published on 8 December 2015
3) Neptune Orient Lines - CMA CGM To Privatise NOL by OCBC Investment Research, published on 8 December 2015
Source : CIMB Research