1. There is a negative correlation between the dollar and the BDI of -0.37 since 1986.
2. The dollar to U.S. Rev/TEU correlation is -0.7 since 1987.
3. Freight is a commodity and commodities fall in dollar rebounds.
4. Since Breton Woods collapsed there have probably been three major periods of massive dollar declines; looks like we just had the third.
5. Wal Mart tells us consumers could very well be about to be maxed-out from the cumulative effect of buying binges in the 1990s.
6. Wal Mart accounts for 25+% of China outbound container shipping volumes Wages in China for Wal Mart low-end goods are rising faster than any potential RMB revaluation.
7. Ship capacity on order — almost any type of ship you care to choose; tankers, bulkers, containers — is currently equal to about seven years of normalized demand.
Since Mr. de Trenck’s advice was issued, transport stocks have been getting shorted in Hong Kong all week, and three of the top five are shipping names.
“COSCO Pacific and China Merchants have taken a reasonable licking, in line with traditional volatility. We still think COSCO Pacific is over-priced (our official long-term view on valuation), but would expect a rebound or a breather in correction,” said Charles. He simply doesn’t care for currently listed companies nor Coscon’s upcoming IPO. “Pricing and IPO of parent’s container shipping arm at top of cycle remains an issue which will contribute added volatility to sector.
Charles also pointed out that Taiwan shipping was in a distressed state on 16 May, with reports that rates from Taiwan to the U.S. fell 12%. “For now, we maintain our view of a low-end of 3-5% revenue/TEU growth in 2005E against a market view that was as high as 7%,” he said. Also news such as the more than 7% per TEU cost hike cited by NOL mean that costs are outracing the weaker revenue gains.
In early 2004, it became clear to us that 2005 would be the most active year of consolidation among shipping companies in history. Our belief was underpinned by the fact that shipping companies were generating loads of cash from both operations and the capital markets, the fundamentals for the shipping industry looked set to remain strong and shipyards were operating at or near full capacity. So, armed with loads of cash and good prospects, it is natural to expect that companies would look to reap operational and financial synergies and leverage through growth, and that that growth would come in the form of corporate deals rather than single vessel purchases. And that is exactly what has happened in virtually every sector of the international shipping industry.
The Biggest Gets Bigger
In the latest and most dramatic example of this phenomenon, A.P. Moller-Maersk launched a takeover bid this week for 100% of the shares in Royal P&O Nedlloyd in the largest container shipping M&A deal ever. The takeover bid values P&O at Euro 57 per share, which represents a 41% premium to the then-current price and a 45% premium to the price over the last six months. The bid is also a whopping 130% over the rights issue price on the deal that received Marine Money’s Deal of the Year Award this year and values the company at 1.6x FY05E. Although we expect Royal P&O Nedlloyd shareholders and P&O shareholders, who own 25% of Royal P&O Nedlloyd, to vote in favor the deal, the European Commission may require Maersk to sell off certain routes in order to consummate the deal legally, which could in turn spark a series of smaller M&A deals.
Randy Sesson at Goldman Sachs is representing A.P. Moller on the transaction, JP Morgan is representing Royal P&O Nedlloyd and Citigroup is representing P&O.
Valuation Metrics – AP Moller Set to Get P&O for Free
The transaction is an important one for both AP Moller and the container market in general. As you can see from the graph on the first page, the deal solidifies AP Moller’s position as the world’s largest carrier by taking out the number 3 player and propelling itself to a size that is set to be more than double that of its next largest competitor. On the industry level, the good news is that it shows APM’s bullishness about the outlook for the market, even despite the enormous post-panamax containership order book and some gloomy forecasts by analysts. The loss of P&O from the Grand Alliance will have a negative impact on fellow members NYK, OOCL and Hapag-Lloyd, as Grand Alliance has historically been an effective competitor to Maersk although we can hope that the rationalization of tonnage might ultimately help lessen the blows of looming overcapacity. In a research note, Citigroup container shipping analyst Charles de Trenck said he thinks the deal might raise the ante for other container lines, perhaps suprring NOL to acquire Wan Hai Lines, which has loads of ships on order. De Trenck also surmises that Evergreen could potentially be hurt, so we would expect this transaction to cause a spate of mergers and acquisitions.
Like any truly good M&A deal, this one is beneficial to everyone involved. Shareholders in Royal P&O Nedlloyd get a great valuation for their shares at a time when many think the market might start to weaken. If they want to remain exposed to the industry, they can use their tender proceeds to buy shares in AP Moller. And for AP Moller, the deal is fantastic. With synergies of around $350 million and AP Moller’s P/E valuation of 10x, the company’s share price should increase by the entire purchase price of the new company. Adding in the $400 million of earnings that Royal P&O Nedlloyd is expected to generate in 2005 will bring the number to $4 billion. Put another way, one could make the argument that AP Moller is getting Royal P&O Nedlloyd company for free!
Step Aside Fendi, Watch Out Gucci – Big John Brands
John Fredriksen has evolved into his own brand. What the tanker tycoon seems to have learned is that by taking a minority position in publicly traded shipping companies, he is able to create value when investors assume he is there to bid up the stock before taking the company over. With this week’s purchase of 5% of Jinhui, Big John Brands has a toehold in just about every sector of the shipping business. Since the shipping markets began to run in late 2002, Big John Brands has taken minority stakes in HMM, P&O Nedlloyd, NOL, Hanjin, Korea Line, General Maritime and probably a bunch more that we are forgetting.
At the same time, Fredriksen is reducing his stake in Frontline and affiliates. For example, this week Frontline decide to spin off almost half of Frontline’s remaining holding in Ship Finance Int. Ltd. The stake, equal to 25% of the total shares in Ship Finance, will represent a total dividend of approximately USD 400 million. Frontline shareholders will receive 1 share in Ship Finance for every 4 shares they have in Frontline Ltd. Ex date for the dividend is set to 3 February, record date 7 February while the shares will be distributed 18 February.
Fredriksen, who is also Frontline’s Chairman, said in a comment: “In line with our strategy we are pleased to announce that Frontline spins off further 25% of Ship Finance. The spin-off will hopefully lead to an increased liquidity, more independence, better coverage, higher interest and, hopefully, improved pricing of the Ship Finance shares. The difference in business strategy and dividend strategy makes the spin-off logical.”
John Fredriksen has evolved into his own brand. What the tanker tycoon seems to have learned is that by taking a minority position in publicly traded shipping companies, he is able to create value when investors assume he is there to bid up the stock before taking the company over. With this week’s purchase of 5% of Jinhui, Big John Brands has a toehold in just about every sector of the shipping business. Since the shipping markets began to run in late 2002, Big John Brands has taken minority stakes in HMM, P&O Nedlloyd, NOL, Hanjin, Korea Line, General Maritime and probably a bunch more that we are forgetting.
At the same time, Fredriksen is reducing his stake in Frontline and affiliates. For example, this week Frontline decide to spin off almost half of Frontline’s remaining holding in Ship Finance Int. Ltd. The stake, equal to 25% of the total shares in Ship Finance, will represent a total dividend of approximately USD 400 million. Frontline shareholders will receive 1 share in Ship Finance for every 4 shares they have in Frontline Ltd. Ex date for the dividend is set to 3 February, record date 7 February while the shares will be distributed 18 February.
Fredriksen, who is also Frontline’s Chairman, said in a comment: “In line with our strategy we are pleased to announce that Frontline spins off further 25% of Ship Finance. The spin-off will hopefully lead to an increased liquidity, more independence, better coverage, higher interest and, hopefully, improved pricing of the Ship Finance shares. The difference in business strategy and dividend strategy makes the spin-off logical.”
Written by:
carisk | Categories:
Equity,
Freshly Minted | February 10th, 2005 |
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By Urs M Dür
[The following is an updated version of what appeared in Freshly Minted May 1st 2003. The conclusions are similar, but new numbers were provided and added to shed even more light on this substantial deal. – ED]
Singapore listed Neptune Orient Lines (NOL) finally, after years of trying to divest itself of its profitable Atlantic basin tanker arm, sold American Eagle Tankers (AET) to Malaysia International Shipping Corp. (MISC) for a total of $1 ,02 billion in equity ($445m), dividend funding $75m) and assumption of debt ($500m according to sources at NOL). NOL, losing over $220m last year and levered 84% debt to book at the end of ’02 (far worse, needless to say, debt/NAV), needed to do something and by our estimation got a big premium for the AET assets even if one includes the goodwill and franchise value associated with AET, about 202% of NAV. We go over our estimates below.
JPMorgan, specifically Michael Borch, was financial advisor to NOL and Citibank to MISC. Both banks, while it appears at this stage that NOL got the better of the deal just as the Aframax market is going to get blasted with a 9% supply increase in a falling market, deserve a huge amount of credit for getting a deal, which many said was politically unfeasible especially as the Malaysian government, via Petronas, and the Singaporean authorities, Temasec, respectively controlling owners of MISC and NOL, are known political rivals not usually willing to cut each other some slack. Really, bravo to both banks.
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Written by:
carisk | Categories:
Marine Money | May 1st, 2003 |
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In shipping charter parties, a good broker makes both parties feel that they have won the negotiation, while it is likely that both have yielded more than they would have at the start. In shipping M&A brokers and advisors too are involved, but, unless the deal is an obvious one between friendly parties, this “good broker” dynamic is often lost because the deals are done in a public forum.
2002 was a down year in shipping in general and while there were some notable successes this year, see below, just as notable was the abundance of big merger ideas that did not come to fruition. Think about what did not happen in 2002 (so far):
- Royal Caribbean/P&O Princess/Carnival saga.
- Torm/Norden
- AET and MISC/General Maritime/Teekay?
- SCI Privatization and ???
- Bergesen/Worldwide
- Golar’s rumoured sale
- Rumoured merger of PSA and NOL
The list goes on…
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carisk | Categories:
Uncategorized | January 1st, 2003 |
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The fundamental adage of the stock market, indeed any market for that matter, is “buy low, sell high”. As all know in shipping, the liner industry is bogged down in a tremendous slump largely due to similar causes, but also by reasons caused by the individual management of the companies. In this article we take a look at three, primarily liner, companies on three different exchanges and at three different stages in their cycle. From the outset we are not trying to say that all three of these companies are undervalued, simply we are examining each so that one may be able to gain some perspective on liner share valuations. Simply, as the industry is at a low, where can one take advantage of such?
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carisk | Categories:
People & Places | June 1st, 2002 |
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The US is the lynchpin of the world economy. On May 7th 2002 the US Labor Department reported that US worker productivity improved at a rate of 8.6%/year which further dampened the nearly nonexistent inflation concerns. There certainly is liquidity in the US, just look at the rising real estate markets, renewed interest in the bond market, the interest in dividend yields and the spike in share values after the somewhat positive Cisco Systems Q1 2002 earnings report. On the other hand, the lack of inflation is really disinflation bordering on deflation with margins so thin that investment is not an option for many companies. This has lead to the highest unemployment rate in the country, over 6%, since 1993. Therefore the Federal Reserve has left US interest Rates stable, the outlook neutral and the “loose dollar” rules. It is a balancing act, quite simply, and today its still unknown whether the US is in recovery or not. Continue Reading
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carisk | Categories:
Lead Story,
Uncategorized | May 1st, 2002 |
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