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Hapag-Lloyd and CSAV: Jilted or joined at the altar?

Hapag-Lloyd and CSAV: Jilted or joined at the altar?
As well as the usual questions on whether Hapag-Lloyd will actually tie the knot this time, one has to wonder: how long before a company of two becomes a crowd of three?

Compañía Sud Americana de Vapores (CSAV) and Hapag-Lloyd were engaged last week with the signing of a non-binding memorandum of understanding (MoU), bringing talks to a level Hapag-Lloyd has not managed to reach in its 15 or so years of looking for a partner.

Quite whether the Germans are ready for the commitment could be questioned, after Hapag-Lloyd's chairman Juergen Weber suggested that Hamburg Süd should join in the talks.

"The three of us would be stronger together," Weber was quoted as saying by a German newspaper in December. Few could accuse him of being greedy, it's estimated $16 was lost per teu from 2008-2012 by the top 20 lines. Competition from the big three, Maersk, CMA CGM and MSC is cutthroat and economies of scale work well in the container industry, the merger would bring about $300m in synergies.

No comment on the Hamburg Süd suggestion came from CSAV, but it must be aware that becoming the world's fourth largest line with a 1m teu capacity, carrying 7.5m teu per annum and generating sales of $12bn is not enough for Hapag-Lloyd. Indeed while the combination of CSAV and Hapag-Lloyd would create the world's fourth largest container line it would still only have a 5.6% share of global capacity according to consultants Alphaliner. Despite getting its long standing wish of an IPO, within 12 months of the transaction closing according to the MoU, Hapag-Lloyd's chairman at least still has eyes for further consolidation.

Even though Hamburg Süd does not seem to have come to the table, perhaps dismayed from its own recent failed talks with Hapag-Lloyd, there's another name in Hapag Lloyd's black book.

Before Hapag-Lloyd and Hamburg Süd failed to get their parents' blessings last year, Hapag-Lloyd shareholder Klaus Michael Kuhne stated his support for the eventual involvement of a third party from the East in that deal. Given Kuhne's fondness for Neptune Orient Lines (NOL) and his position as a controlling party in the merged entity, alongside the City of Hamburg and CSAV within the terms of the MoU, Hapag-Lloyd may well cast its eyes to Singapore for further consolidation.

This is all speculation of course, the CSAV Hapag-Lloyd deal still needs to make its way through relevant authorities, funds need to be raised, due diligence needs to be done, pre-nuptials signed and then no doubt the lawyers will stretch things out for a while.

The outcome of the MoU should be clear within the next six months, but the real prospect of further consolidation will hang over the Hapag-Lloyd that emerges from any deal.

Another courtship so soon after a merger would no doubt be complex with combination for example of German, Latin American and Asian business cultures a difficult one to bring together.