With the deadline hanging squarely over their heads, CMA-CGM will scramble this week for an angel investor(s) to avoid insolvency. While the Saade family desperately tries to keep a controlling interest in the company, banks may force the issue. Short of a government bailout, CMA-CGM may well become insolvent, at which time the entire company could be for sale.
What follows is the top five reasons CMA-CGM would be an attractive acquisition for Maersk Line.
1. Bargain Basement Price
The offer from Qatari Holdings was reported to be $1 billion for 49% of the company. At issue for CMA-CGM was not the size of the offer but the fact that the Qatari group wanted options to take a controlling interest. This makes the valuation roughly $2 billion. Maersk bought P&O Nedlloyd for $3 billion. CP ships was sold to the TUI Group for $2 billion. Both companies had far fewer assets than CMA-CGM has today.
Maersk Line and CMA CGM operate many joint services on major trade lanes. Maersk would have knowledge of CMA-CGM’s liftings by way of terminal departure reports on joint services. Unlike the P&O Nedlloyd buyout, Maersk would not have to cancel any major consortium service agreements. P&O Nedlloyd was part of the global consortium Grand Alliance, which has a different service schedule and port rotation than Maersk Line. During the integration, several customers who did not, or could not, switch services were lost to other Grand Alliance partners. A combined Maersk Line/CMA-CGM would likely retain much more business than they did with the P&O Nedlloyd.
With 278 ships owned and on long term charter, CMA-CGM controls over one million TEU in standing slot capacity. This added to over 400 Maersk ships would create a behemoth shipping line. A carrier of this size would be able to withstand market fluctuations and have better control over supply side issues which have plagued the industry in the past few years. MSC with 1.7 million TEU is quickly gaining on Maersk (2 million). Perennial number one Maersk Line will want to put some breathing room between it and MSC.
4. Deep pockets
Put simply, A.P. Moller is the only company in the industry that can afford the purchase. There can’t be too many options left for CMA-CGM. Banks in Europe are under pressure to pass so called “stress tests”. Investment in a risky business like container shipping with a company that has allowed its debt to get out of control cannot be tempting for even the most well capitalized banks. Without some form of government bailout or backing, CMA-CGM will have a difficult time servicing this debt in the future. The A.P. Moller group with diversified holdings (particularly oil) has access to the capital to restructure that debt.
The Sealand and P&O Nedlloyd purchases give Maersk the experience necessary to handle the size and scope of an acquisition as large as CMA-CGM. Senior Managers at Maersk Line have direct a track record navigating the complexities of integration. Maersk Line’s long term strategy has been growth through acquisition.
Of course this post is pure speculation. Maersk stated publicly earlier this year that it is not looking for any buyouts at this time. However, sometimes timing is just right. If CMA-CGM comes up for sale, it just might be too difficult for Maersk to resist.
Comments/criticisms are welcome.