China’s $6.3bln shipping buy is delicately stacked

COSCO Shipping is leading an offer to buy Orient Overseas. The price, equal to 1.4 times book value, is expensive for the loss-making business. A further agreement to preserve jobs, and the Hong Kong target’s listing, sets a high bar for the Chinese state firm to create value.

CONTEXT NEWS

– China’s COSCO Shipping Holdings announced on July 9 an offer to buy Hong Kong-listed Orient Overseas International for HK$49.2 billion ($6.3 billion), in a deal that will create the world’s third-largest container liner.

– COSCO, a listed subsidiary of state-owned COSCO Shipping Corporation, has partnered with the Shanghai International Port Group to offer HK$78.67 per share for Orient, the companies said. That represents a premium of 31.1 percent over Orient’s closing share price on July 7.

– Orient’s controlling shareholders have agreed to sell their 68.7 percent stake to COSCO Shipping. Shanghai Port will take a total 9.9 percent stake of Orient as part of the deal.

– The buyers have agreed to retain the listing of Orient, maintain the target’s global headquarters, and support Hong Kong’s status as a global maritime centre. COSCO and Shanghai Port also pledged not to terminate any employees as a result of the deal for at least two years.

– UBS is advising COSCO and Shanghai Port. JPMorgan is advising Orient.