GLOBAL: Maersk buyout of P&O: Asian implications
The buyout of P&O Nedlloyd (4th largest) by Maersk at a whopping 40% premium over pre-announcement market cap was shocking. Looking at straight capacity, Maersk (pre-merger) was the leader with about 950,000 TEUs of capacity. In second place is Mediterranean Shipping with about 650,000 TEUs of capacity. After the merger, Maersk's capacity will near 1.4 million TEUs and its market share will be roughly 17% of the global market.
(Alphaliner and WTO numbers)
Now, why the merger and why pay the premium?
In recent years, the global shipping trade has been booming to say the least, and of course our favorite explanatory variable, China leads the charge, with huge demands and supplying of imports and exports. Though Maersk is diversified, its container shipping contributed to nearly half of its profits for FY'04 and container shipping profits nearly doubled YoY. This push and an optimistic outlook on continued growth in global trade with tight supply is one push for expansion.
Why not go organic? The time it takes to receive a ship after ordering is about 3 years. By the time, they may not have a backlog of orders to fill. Buying P&O increases their fleet from about 390 to 550 ships plus they will get the rights to 42 ships that P&O has on order.
Third reason: guaging from the alliances, it was pretty much Grand Alliance, CHKY, Maersk, and New World as the four major players. This merger will place Maersk/P&O at 1.4 million TEUs, leave CHKY second at .94 million TEUs drop the Grand Alliance to .687 TEUs.
Implications for Asia:
Whether Maersk's bet was accurate or not with respect to global demand for shipping continuing to strain supply (completed ship orders should increase global capacity by roughly 10%). What it will mean for Asia is:
1)More stabilized shipping prices: which will be positive for growth.
2)Possible consolidations amongst the major Asian carriers.
3)Singapore: could be bad for Singapore in that Maersk transships through PTP (Johor) instead of PTA (Singapore) and may do the same with P&O's newly acquired business.
Stocks to watch:
Evergreen - has performed well, Evergreen Group is well positioned, good reserves, and stands to benefit from potential opening of cross-strait relations with China. Conservative Play.
Wan Hai - Good positioning, and is trading below competitors P/E (EVergreen at 8.4, Wan Hai at 7.7). More Aggressive Play.
Now, why the merger and why pay the premium?
In recent years, the global shipping trade has been booming to say the least, and of course our favorite explanatory variable, China leads the charge, with huge demands and supplying of imports and exports. Though Maersk is diversified, its container shipping contributed to nearly half of its profits for FY'04 and container shipping profits nearly doubled YoY. This push and an optimistic outlook on continued growth in global trade with tight supply is one push for expansion.
Why not go organic? The time it takes to receive a ship after ordering is about 3 years. By the time, they may not have a backlog of orders to fill. Buying P&O increases their fleet from about 390 to 550 ships plus they will get the rights to 42 ships that P&O has on order.
Third reason: guaging from the alliances, it was pretty much Grand Alliance, CHKY, Maersk, and New World as the four major players. This merger will place Maersk/P&O at 1.4 million TEUs, leave CHKY second at .94 million TEUs drop the Grand Alliance to .687 TEUs.
Implications for Asia:
Whether Maersk's bet was accurate or not with respect to global demand for shipping continuing to strain supply (completed ship orders should increase global capacity by roughly 10%). What it will mean for Asia is:
1)More stabilized shipping prices: which will be positive for growth.
2)Possible consolidations amongst the major Asian carriers.
3)Singapore: could be bad for Singapore in that Maersk transships through PTP (Johor) instead of PTA (Singapore) and may do the same with P&O's newly acquired business.
Stocks to watch:
Evergreen - has performed well, Evergreen Group is well positioned, good reserves, and stands to benefit from potential opening of cross-strait relations with China. Conservative Play.
Wan Hai - Good positioning, and is trading below competitors P/E (EVergreen at 8.4, Wan Hai at 7.7). More Aggressive Play.
posted by howa at
5/13/2005
