Bloomberg reported this morning that CMA CGM is in talks with lenders to finance its potential acquisition of NOL, according to people with knowledge of the matter. The banks named to be involved include BNP Paribas SA, HSBC Holdings Plc and JPMorgan Chase & Co.
Recall that CMA CGM has until 7 Dec to complete due diligence and negotiate definitive offer with NOL and Temasek.
NOL responded to SGX query and confirmed that it is continuing in discussions with respect to a potential acquisition of NOL previously announced on 7 Nov. Do note that there is no assurance that any such discussion will result in any definitive agreement or transaction, or whether there will be any offer made.
Stay cautious on absence of indicative price
Again, without any assurance of any deal going through, we believe investors should stay cautious of the potential downside.
Trading at S$1.200 as at 10.56am, we compare the risk and reward given the uncertain outcome of the potential deal:
1) If CMA CGM does makes an offer, we assume it does it at the book value of NOL as at end-3Q15 of ~S$1.38, which represents an upside ~15%.
2) If the deal falls through, and given the gloomy outlook of the industry ahead, we do not see any near-term recovery. Hence, based on our current FV of S$0.96, the downside is ~20%.
While it seems like CMA CGM is making progress, without any confirmation nor any indicative price, we believe investors should stay cautious of this potential downside but note that our FV does not include any impact from the potential privatisation of NOL.
Source : OCBC Investment Research
Labels: Neptune Orient Lines (NOL), Shipping Sector