European tourism and shipping firm TUI won conditional permission from the European Commission to buy CP Ships, Ltd. to create one of the world’s five biggest container shipping companies.
The European Union executive ruled that TUI’s Hapag-Lloyd division would have to withdraw from two liner shipping conferences operating between Europe and North America for the transaction to go ahead.
TUI said the conditions would have limited impact.
“These conditions have no influence on our routes, the number of routes or on our partners,” a TUI spokeswoman told Reuters.
Liner conferences are groups of shipping companies that coordinate with each other. They would ordinarily be a violation of antitrust laws but have enjoyed antitrust immunity for nearly 20 years, though that may soon be reconsidered.
In light of the conditions, the Commission concluded that “the transaction will not significantly impede effective competition in the European Economic Area or any part of it”.
Germany’s TUI has offered $2 billion in cash, or $21.50 a share, for British-Canadian CP Ships and has said it hopes to complete the acquisition by the end of the year.
“The remedies ensure that the merger does not lead to anticompetitive coordination between shipping lines on the important trade lanes between Europe and North America,” Competition Commissioner Neelie Kroes said in a statement.
The Commission said the combined market shares of the conference members would give rise to competition concerns. By withdrawing from the liner conferences, Hapag-Lloyd would lose the advantage others enjoy.
STRENGTH AND SCALE
TUI has said the acquisition of British-Canadian CP Ships would accelerate the growth of its shipping division and make Hapag-Lloyd more attractive to partners in alliances.
“The combination of Hapag-Lloyd and CP Ships will create a company with the strength and scale to compete effectively in an industry where consolidation is changing the landscape,” said Hapag-Lloyd Chief Executive Michael Behrendt in a statement when the deal was announced in August.
The takeover of CP Ships would create “a leading European player in the industry”, Kroes said on Wednesday.
The combined group would have had sales of about $7 billion and earnings before interest, tax, depreciation and amortization (EBITDA) of $731 million in 2004 before the effects of consolidation. The companies together operate 139 ships on over 100 routes.
TUI Chief Executive Michael Frenzel has said shipping and tourism are TUI’s two main businesses after his transformation of the firm from former industrial conglomerate Preussag.
Reuters reported that the deal was expected to win Commission approval.
Shares in TUI fell 1.3% to 17.31 euros, slightly underperforming the German blue-chip DAX index, which dropped one percent.
TUI extended its offer for CP Ships until 2200 GMT on Oct. 18. The offer is conditional on acceptance from shareholders holding at least two-thirds of CP Ships stock. (Reuters)