Acquisition of OOCL by COSCO shipping (PHBS, 2017)

1. STORY OF A $6,3B
TAKEOVER DEAL
04/2017
&

2. 1. Introduction
Key players

3. COSCO
DESCRIPTION
CREATION: 1961
FOUNDED: China
HEADQUARTERS: Beijing
TYPE: State Own Enterprise
SLOGAN:"World thinking, International Vision"
ACTIVITIES: Shipping and Logistic
ALSO: Freight forwarding, shipbuilding, shiprepairing,
terminal operations.
3
Source: COSCO annual reports

4. China Ocean Shipping Company (COSCO)
DESCRIPTION
FULL NAME: China Ocean Shipping (Group) Company
CREATION: 2016 (Merging COSCO & China Shipping)
FOUNDED: China
HEADQUARTERS: Shanghai
TYPE: State Own Enterprise - Conglomerate
SUBSIDIARIES: 300
SLOGAN: "World thinking, International Vision"
ACTIVITIES: Shipping and Logistic
ALSO: Bulk Shipping, LNG transportation, Real estate
development, Passenger liner, Leasing, Ship building.
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Source: COSCO annual reports

5. China Ocean Shipping Company (COSCO)
COSCO LISTED ENTITIES (7):
HK: COSCO Pacific Ltd.
HK: COSCO International Holdings Ltd.
HK: China COSCO Holdings Co. Ltd. (H shares)
SH: China COSCO Holdings Co. Ltd. (A-share)
HK: China International Marine Containers Co. Ltd. (H shares)
SZ: China International Marine Containers Co. Ltd.
SZ: China International Marine Containers Co. Ltd. (B shares)
Singapore: COSCO Corporation (Singapore) Limited
Japan: Cosco SHIPPING Lines (Japan) Co., Ltd.
2016/04: COSCO buy 51% of Piraeus Port Authority, listed on the Athens Stock Exchange
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Source: COSCO annual reports

6. China Ocean Shipping Company (COSCO)
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Source : 4-trader.com
Source : COSCO SHIPPING Holding annual report
Source: COSCO annual reports

7. ORIENT OVERSEAS OOIL
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DESCRIPTION
FULL NAME: Orient Overseas (International) Ltd (Holding)
CREATION: 1969
FOUNDED: Hong Kong
HEADQUARTERS: Hong Kong (main) & Bermuda (Registered)
TYPE: Listed company
SUBSIDIARIES: Orient Overseas Containers Line : OOCL &
OOCL Logistics
SLOGAN: “We take it personally"
ACTIVITIES: Shipping and Logistic
SPECIALITY: Refigerated cargo (Food)
Source: OOIL annual reports

8. ORIENT OVERSEAS
8
Orient Overseas (International) Limited (“OOIL”), a company with total
revenues in excess of US$6.1 billion, has principal business activities in
container transport and logistics services. Listed on The Stock Exchange of
Hong Kong, the OOIL Group has more than 330 offices in 70 countries.
OOCL is one of the world's largest integrated international transportation,
logistics and terminal companies, and is an industry leader in the use of
information technology and e-commerce to manage the entire cargo transport
process.
Source: OOIL/OOCL annual reports

9. 2. Market & Competition
The industry

10. Market & Competition
10

11. Market & Competition
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12. 3. Deal’s summary
The takeover

13. DEAL’s Summary
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Source: Bloomberg

14. 4. Behind the deal
Vision & Strategy

15. BACKSTAGE’S STRATEGY
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▸POLITICAL: Since HK Handover by the UK
to the PRC in 1997, China is progressively
tightening its control on HK and its
companies. The OOCL aquisition by the
state own COSCO allows to step back
from a market economy competition to a
monopoly situation towards this industry
within China. Thus, is allowing the
Chinese governement to have a better
control on every entry points for imported
and exported goods (strategic) and for
COSCO to improve its Overall Logistic.
 Regulated by the Ministry of Commerce [MOFCOM] Chinese Antimonopoly Bureau

16. BACKSTAGE’S STRATEGY
16
▸ECONOMICAL: The sucessful
acquisition of OOCL by COSCO
will catapult the combined entity
to the world’s third largest liner
position with 12% market share,
ranking after Maersk (16% market
share) and MSC (15% market
share).
▸Besides, operating through HK
may lead to higher tax benefits
and exchange rates opportunities
for the company.
Source: Bloomberg

17. BACKSTAGE’S STRATEGY
17
▸OPERATIONS: The combined COSCO-OOIL
entity will have a fleet of 421 containerships
amounting to 2.4m TEUs. Moreover, OOCL
is specialized into refrigerated cargo,
allowing COSCO to better compete with
MAERSK in the food transportation sector
(diversification). It will also leads COSCO to
an increased logistics' capacity with a better
access to new delivery points as well as
OOCL’s customer database.
Source: Bloomberg

18. OUTCOME: SYNERGY
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▸ Synergy is the expected
outcome of the strategy.
▸ Evaluated using the FCFF and
Firm’s value.
▸ It defines the potential for
costs reductions from the
resulting economies of scale.
Source: Bloomberg

19. 5. Perspectives
Outcomes

20. EXPECTED INTEGRATION’S STRATEGY
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By acquiring one of its competitors, COSCO is applying an horizontal integration strategy.
SUBSIDIARY MERGER (Short term): OOCL becomes a subsidiary of COSCO and keep its
internal structure and organisation mainly unchanged. The name OOCL is kept in order to
limit the impact onto OOCL customers, employees and other stackeholders.
STATUATORY MERGER (Mid-to-long term): OOCL activity is progressively absorbed under
the COSCO flag, generating a stronger position for COSCO, a better Synergy and a higher
visibility. Internal restructurations may occurs.
The fact that both companies are sharing a common culture (Asian) and a similar language,
limit the risks and difficulties for the integration in term of cross-border management.

21. IMPACT ON STAKEHOLDERS
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EXTERNAL STAKEHOLDERS:
CONTRIBUTIONS BENEFITS RISKS
GOVERNEMENT
(PRC)
Legal and financial
Control on
imports/exports
State ownership may
lead to lower results
CUSTOMERS Loyalty Better service
Monopoly may lead to
increase prices
CREDITORS
(BOC)
Loans Interet rates Default
SUPPLIERS
Services and
goods
Higher turnover
Monopoly may lead to
a higher buyer power

22. IMPACT ON STAKEHOLDERS
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INTERNAL STAKEHOLDERS:
CONTRIBUTIONS BENEFITS RISKS
STOCKEHOLDERS
(CUSCO Holdings)
Financial support
Higher share’s
value and higher
power
Integration’s failure
STOCKEHOLDERS
(OOCL)
Financial support
Higher share’s
value
Lower power (share’s
dilution)
EMPLOYEES
(Managers)
Skills, knowledge
Career
opportunities
Restructuration
BOARD
(OOCL)
Management and
Corporate strategy
Higher power and
opportunities
Restructuration

23. 6. Financial analysis
Valuation

24. Deal’s progress: OOCL’s stock and situation
24
Today, the deal is still not finalized
Source: Bloomberg

25. VALUATION
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Source: Bloomberg
• Ratios of comparable transactions
are a widely used metric for judging
the transaction value (TV) of a
specific deal
• In the case of Orient Overseas, the
transaction value seems to be
justified

26. VALUATION
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Source: Bloomberg

27. VALUATION
27
Source: Bloomberg

28. 4. Conclusion
Summary

29. KEY POINTS
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DATE: July 2017, Deal not complete in April 2018.
ACQUIRER: COSCO Shipping Holding (Subsidiary of COSCO China’s state owned)
TARGET: OOCL (Private company, HK)
TYPE: Friendly acquisition, horizontal merging (competitor) and subsidiary merging
(OOCL integrated as a subsidiary of COSCO Shipping).
MOTIVATIONS:
▸POLITICAL OUTCOMES: Near-Monopoly on the Asian Area, Monopoly in China.
Better control on imported/exported good’s flows within China.
▸ECONOMICAL OUTCOMES: Reach the third position in the world maritime freight
industry (power). Tax and exchange rates benefits (HK).
▸OPERATIONAL OUTCOMES: Reach new markets, new delivery points and enlarge
customer’s database.

30. END
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