News

NOL Not a Good Buy for Maersk?

Source: World Maritime News

November 13th 2015

The acquisition of Neptune Orient Lines (NOL), the parent company of the APL, may not be such a good idea for Danish container shipping company Maersk Line, according to the latest warnings from debt markets.

“Maersk Line could possibly derive some synergies from an acquisition but Maersk Line is one of the few profitable companies in the sector and it could dilute margins initially,” Marie Fischer-Sabatié, a senior vice president at Moody’s Investors Service, told Bloomberg.

Earlier this week, NOL confirmed that it was in preliminary talks with French CMA CGM and Maersk regarding a potential acquisition of NOL by either of the two ocean carriers.

However, the company stressed that there is no assurance that any such discussions will result in any definitive agreement or transaction, or that any offer for NOL will be made.

The yields on both companies’ bonds have gone up this week following the confirmation, Bloomberg said.

There are significant obstacles to an eventual sale of NOL, seeing that the attractiveness of APL’s business has diminished significantly since 2009.

“These are mainly related to the difficulty of reaching an agreement on the firm’s valuation. Although NOL’s share price soared by 6% in early trading following the announcement, it closed flat at S$1.055 on 9 November and continues to trade at a 24% discount to its book value of S$1.38 per share, reflecting the market’s scepticism that a sale can be successfully concluded,” Alphaliner believes.

In its struggle to return to profit, NOL resorted to sale of various assets, including its logistics arm, APL Logistics, for USD 1.2 billion in 2015. However, the attempts did not reap fruit as APL is still in red with a net loss of USD 96 million.

According to Alphaliner, APL has seen its global capacity share fall to 2.8% from 4.2% in 2010.

On the other hand, aside to its recent track record for losses and debt, NOL does have some terminals in Asia, the US and now Europe that are included within its APL liner division. APL has 56 owned ships, (plus another 40 or so that it charters-in) with the largest being its 10 x 14,000 teu units.

News on the potential consolidation is seen as a good sign as container shipping market struggles with overcapacity and low freight rates. However, it is not likely that NOL’s merger with either of the interested carriers would result in immediate improvement in the sector as further consolidation is needed, as indicated by Fischer-Sabatié.