COSCO Shipping, China’s largest shipping firm, has agreed to acquire Hong Kong-based peer Orient Overseas for about $6.3 billion. That deal will see COSCO become the world’s third biggest container liner. Shares in Orient Overseas soared as much as 25% in Monday trading in Hong Kong.
The proposed acquisition values Orient Overseas at HKD78.67 per share – or about a 30% premium to the stock’s closing share price on Friday. Orient Overseas’ shares haven’t been at that level for almost 10 years.
Crucial Perspective analyst Corrine Png thinks COSCO is getting the better deal here. She points out that COSCO’s offer is only 15% above current average valuations in the container shipping industry and some way off the all-time highs seen in Orient Overseas’ stock price.
“It is too early to sell OOIL when the global container shipping industry demand-supply balance has only started to improve this year and we expect OOIL to achieve a net profit of US$134m this year from US$219m net loss in 2016 and rising to a net profit of US$255m by 2019.” However, Png admits that the offer is now unlikely to get much better for Orient Overseas’ shareholders given the firm’s controlling shareholder has already accepted.
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