A CMA CGM and Hapag-Lloyd merger - really?

A CMA CGM and Hapag-Lloyd merger - really? Photo: CMA CGM

A week ago we wrote that the latest round of consolidation in the container shipping sector appeared largely complete with regulatory approval for Cosco Shipping to buy Orient Overseas International Ltd (OOIL), but yesterday up pops the story that CMA CGM had approached rival Hapag-Lloyd on a stock-for-stock merger.

The Reuters story quoted financial sources that the idea was for a non-cash merger, as well as quoting a Hapag-Lloyd spokesman that. “These are market rumours without substance”. So is this just another silly season story, or could there be something here that makes a bit more actual sense?

The idea that CMA CGM approached Hapag-Lloyd about a merger does not seem out of the realms of possibility. The company has continued to be active consolidation on both a large scale acquiring Neptune Orient Lines (NOL) in 201 and on a smaller, niche scale recently announcing plans to buy Finnish line Containerships. CMA CGM chairman and ceo Rodolphe Saade has also made it clear the company sees a continued role in industry consolidation.

Read more: CMA CGM to buy Containerships strengthening its intra-Europe business

In addition industry sources indicate that over the last couple of years CMA CGM has continued to make approaches to other companies in the sector over possible M&A transactions.

With the rapid consolidation that the market has seen CMA CGM will actually slip to fourth in global rankings of container lines once Cosco Shipping’s acquisition of OOIL is complete. To further jump up the rankings in terms of size leaves increasingly limited options, particularly on any major scale.

As either the fifth or sixth largest container line, seemingly dependent on what month it is, Hapag-Lloyd in pure numerical terms makes a fairly obvious choice with the combined entity becoming the world’s largest container line with 4.23m teu in capacity, and 19% market share, based on figures from Alphaliner.

However, both companies have been through transactions recently – CMA CGM with NOL, and Hapag-Lloyd with CSAV and United Arab Shipping Co (UASC). Not only are both probably still digesting these moves it limits the ability to finance a major deal – therefore though an all-stock transaction would make sense.

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However, the mechanics of a merger get rather more complex. With the various consolidation moves both companies have undertaken the Franco-Germanic merger would in fact be a near global meeting of cultures spanning Asia, Middle East, the Americas and Europe.

Moreover both companies have been dominant in transactions they have undertaken while adopting different approaches to integration. CMA CGM has maintained brands such ANL and NOL’s APL brand, while names such as CP Ships acquired by Hapag-Lloyd simply disappeared.

Numerically CMA CGM would be the larger, therefore dominant party in a merger, would that be acceptable to Hapag-Lloyd and its shareholders? There would also be the issue of regulatory approvals.

Update: Hapag-Lloyd shareholder Klaus-Michael Kühne rejects CMA CGM merger proposal

The reality is it looks rather unlikely, but in the rapidly evolving landscape of container shipping the phrase “never say never” springs to mind.

Posted 10 July 2018

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Marcus Hand

Editor, Seatrade Maritime News