COSCO – CHINA SHIPPING MERGER
After much talk, a merger between China Ocean Shipping Co., (COSCO Group) and China Shipping Group Co. are finally in the works. If followed through, the deal could value anywhere from $15 billion to $20 billion or more and create the world’s fourth largest container operator. The three largest container-shipping companies in the world today are Maersk, Mediterranean Shipping Co., and CMA CGM. COSCO currently operates 175 container vessels while CSCL operates 156, which makes them the sixth and seventh largest container companies individually. The potential consolidation of the two state-owned enterprises could also lead to future consolidations outside of China in what is currently considered to be a very fragmented container shipping industry.
The merger is expected to be difficult and would require government and regulatory approval. In addition, both companies have subsidiaries in shipping-related and non-shipping-related industries. In August, subsidiaries from both companies suspended trading due to the possible merger. Exactly which units will merge is still being discussed but it is said to mostly involve the two groups’ container shipping units with others involved perhaps a bit less.
Another complicated point in the discussions of the merger includes ways that both companies will maintain their staff, as they will be moved around within other businesses that are involved.
COSCO and CSCL are part of competing alliances which means they will either have to join the same alliance or pull out from one or both and join a third group together. This will most likely lead to a very long and complicated process involving approvals by the Federal Maritime Commission and the EU’s Competition Commission.
For years, executives in the industry have called for consolidation but many owners are sovereign with extreme wealth funds or long generations of families that are able to manage losses for a long period of time with hopes of recovery therefore consolidation has previously been rare within the industry.
As part of a very broad reform plan, China is combining many of its very large state-owned companies in hopes of keeping their economy steady. Many economists however, have criticized the plan as a threat to the country’s economic growth. Economists have stated that it will most likely cause more transactions however it is not simply the case of two companies merging as it is two already large companies becoming even larger.
China Merchants Energy Shipping Co. and Sinotrans & CSC Holdings Co. are taking the first steps to plan a merge as well. Alliances have been formed between the world’s 20 biggest container operators over the past few years, which in return, has cut many of their costs by sharing ships, port calls and networks.
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