Is Evergreen the next acquisition target of CMA CGM?

After failing to merge with Hapag-Lloyd, recent media speculation suggests that French carrier CMA CGM might be looking east for its next target, with Taiwanese Evergreen understood to be next on the list of acquisition possibilities.

Confirming rumours at the start of the summer that CMA CGM had approached Hapag-Lloyd, CMA CGM’s chief executive, Rodolphe Saadé, said the ‘matter was closed,’ but the company remains on the lookout for acquisition targets.

Rumours suggest that the French carrier could be willing to pay up to $4bn for the Taiwanese line. Evergreen was quick to pour cold water on takeover speculation. A spokesperson for Evergreen said that media speculation was “no more than rumour, which have no grounds”. But following Hapag Lloyd’s dismissal of the CMA CGM merger offer as speculation earlier this summer, or the constant merger denials of OOIL and Cosco last year as ‘fake news’, Evergreen’s denial of the takeover offer becomes less credible.

Evergreen’s strategic direction has been unclear since its founder, Chang Yung-fa, died in early 2016. Chang’s eldest son and largest shareholder, Chang Kuo-hua, is said to be getting more involved in the business as he decides on its future direction. During recent celebrations to mark Evergreen’s 50th anniversary, Kuo-hua talked about how he looked forward to the next milestone, when the group reached 60, and then its centenary.

Ocean carrier consolidation has been a frequent theme in the past few years. The recent consolidation wave in the industry came with negative side effects, most notably in the level of service when it comes to reliability of bookings and transit times. For container lines, however, consolidation remains a key strategy to attain cost efficiency in a market struggling with overcapacity headwinds. On top of that, the onset of the U.S.-China trade war is increasing cost pressures, so merger activity makes sense for some carriers. Despite some pickup in rates in the beginning of 2018, freight rates are about half of break-even levels across major trade routes.

This also applies to CMA CGM which saw its profits plunge 90% in Q2 on surging fuel bill. This has not prevented the French carrier from growing inorganically though. CMA CGM has been on the acquisition trail this year, buying European intra-regional provider Containerships in June and acquiring a 25% stake in CEVA logistics in April to pursue vertical consolidation in logistics. The acquisition of Evergreen would push it into second place in the container line tables (combined capacity of 3.7m TEU), ahead of MSC. When their respective orderbooks are included, the acquisition would propel the combined entity to the top place in the container line tables ahead of Maersk.

Source: Transport Intelligence, September 13, 2018

Author: Violeta Keckarovska


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