Would selling APL Logistics be good for NOL?

The problem with this strategy often is that the most sellable part of the company will almost certainly be the part that actually makes money, even though it is not the core business.

It would seem to be the position Neptune Orient Lines (NOL) has found itself in after other scenarios have failed to transpire. Consolidation would appear to have been one route for NOL, but it has been unable to achieve this despite some clear attempts over the years since it acquired APL. And endless rounds of cost savings have still left the liner business losing money.

It has also often talked about developing its profitable logistics business to become a much greater part of the overall business, however, it has stuck at just below the 20% mark of revenues for many years now. So it was perhaps no surprise NOL this week clarified that it was looking at a possible sell-off or listing of APL Logistics, although did make it clear any such plans were in very preliminary stages.

Reportedly looking for $750m if it sells, it would be a nice boost for the company. But it is also a one-time thing. An initial public offering (IPO) is a more interesting option as it would keep the logistics arm within the group, albeit diluting its stake, and at the same time provide funds, without taking on more bank debt, for the potential logistics acquisitions NOL talked about at its half year results two weeks ago and hopefully then growing that successful business.

Should it choose to go down the sale route for APL Logistics, and assuming a willing buyer offering the right price, it would leave NOL as a pure play container line, which might make consolidation easier. However, apart from multi-time failed suitor Hapag-Lloyd, which is busy merging with CSAV, it is a little bit hard to see who else might be interested.

Hong Kong-based, Tung family-owned, Orient Overseas Container Line (OOCL) might be a possibility, but given they have found profitability where many others have failed it would seem somewhat unlikely. An IPO for APL Logistics certainly would not solve NOL’s woes but it could well help set it on the right path for the future.

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