Danish shipping giant A.P. Moeller-Maersk agreed to pay 2.3 billion euros ($3.0 billion) in cash for Dutch rival P&O Nedlloyd, expanding its fleet to cement its leadership of the industry.
P&O Nedlloyd’s board will support the intended offer of 57 euros per
share, which represents a 41% premium over its price before tie-up talks were announced last week, the container companies said in a joint statement.
“They are buying to defend their position as the top market player,” said Nordea Securities analyst Finn Bjarke Pedersen. “The price is high, but I’m sure that Maersk will make the investment profitable.’’
The P&O Nedlloyd/Maersk combination will have nearly 70,000 employees, 550 vessels and control more than 17% of the global shipping market—more than double its closest rival.
The two expect to cut 1,500 workers within three years, but would not discuss expected cost savings.
The value of the offer, which excludes P&O Nedlloyd’s planned 1.00 euro dividend, confirmed an earlier Reuters report.
Shares in P&O Nedlloyd surged to an all-time high of 57.45 euros and were up 12.3% at 56.70 euros on May 11. The stock had already risen 22% on May 10 after the companies confirmed they were discussing a tie-up.
Before the offer was announced the firm’s stock traded at a discount of as much as 40% to its peers because it was less efficient at keeping its ships full.
Maersk shares were up 1.1% at 55,200 Danish crowns.
Analysts said some investors may be hoping for an even higher competing bid, encouraged by comments from P&O Nedlloyd CEO Philip Green that he could take a look at another offer.
But a source close to the deal said P&O Nedlloyd had already had conversations with other suitors and called them off in favor of the Danish offer.
“This is an industry where people have been talking to each other for some time ... but at the end of the day when someone puts this kind of price on the table I think it’s hard to ignore,” the source said.
Analysts say Maersk’s move could encourage other members of the fragmented industry to look for consolidation opportunities.
Maersk’s bid valued P&O Nedlloyd at 7.8 times expected 2005 earnings, according to Reuters Estimates, significantly below the FTSE European sector average of around 17 for the largest 15 companies. Maersk was trading at around 10.3 times expected 2005 earnings.
Maersk needs to grow
Maersk, which owns the world’s largest container shipping line, Maersk Sealand, said the industry—which has seen rising freight rates for several years—needed to consolidate and that it needed more ships to continue growing.
“With the current lack of ship capacity we would not be able to grow organically within the next three to four years,” A.P. Moeller-Maersk Chief Executive Jess Soederberg said.
Maersk commands a market share of over 12% of global container traffic with almost 400 ships, but its share fell slightly last year as it did not have enough vessels to meet the booming demand, fueled by outsourcing of manufacturing to Asia.
Britain’s P&O, which competes with Maersk in some areas, said it would sell its 25% stake in the Dutch group. The two top P&O executives had resigned from P&O Nedlloyd’s board and did not take part in the tie-up talks.
The companies said they would iron out the takeover details over the next few weeks and expected Maersk to launch the offer next month.
The Dutch company also reported first-quarter operating profit of $74 million, up from $21 million in the year-earlier period, and forecast at least $550 million for the full-year. Revenue rose 16 percent to $1.7 billion.
“P&O Nedlloyd is a good match and will complement our business well,” Soederberg said. “The company has been through a successful turnaround and is a better company now than it was one or two years ago. Its value has therefore also increased.”
The Maersk group, which also pumps oil in the North Sea and runs supermarket chains and an airline, has a market capitalization of around $40 b