US FMC halts Japanese 3 pre-merger activity, but not merger itself


The situation around the merger of NYK, Mitsui OSK Lines and ‘K’ Line’ container business appears confused. The United States Federal Maritime Commission (FMC) issued a statement on the May 2nd 2017, asserting that it “rejected on jurisdictional grounds the “Tripartite Agreement”, an agreement between three carriers to form a joint container shipping service.” This would appear to imply that the American authorities have either reservations about the merger, or intend to block it.

However, the same statement continues that “the Commission determined that parties to the Tripartite Agreement were ultimately establishing a merged, new business entity and that action is among the type of agreements excluded from FMC review.” The “Tripartite” agreement is not the final company that the three Japanese lines are seeking to create. Rather it is a transitional arrangement that aims to increase the level of co-operation between the companies prior to merging. It seems that it is this that the American’s are objecting to.

William Doyle, a commissioner on the FMC, issued a statement clarifying why he voted against the ‘Tripartite Agreement’. Doyle stated, “Much of what the Tripartite parties were asking for revolved around pre-merger or pre-consolidation coordination. For instance, the parties were seeking authority to share information and conduct joint negotiations with third party businesses in the United States for as much as year in advance of any potential merger. These provisions would violate “gun jumping” laws that forbid the sharing of competitively sensitive information or the premature combining of the parties.”   

Yet Doyle asserted, “This decision by the FMC in no way precludes the Japanese carriers from merging their container trade business units into a single stand-alone company. Rather, the vote recognizes that the FMC cannot approve certain actions that would allow the three Japanese companies to act as a merged entity prior to actually merging.” 

Therefore, it would appear that the merger of the three Japanese container operations is still on. There are further hurdles to clear, such as a competition enquiry in Japan, which may not be too onerous, as well as rumblings in the US about the level of consolidation the container shipping market is taking generally. However, it would seem that the FMC’s latest judgement is not terminal for the prospective merger.

Source: Transport Intelligence, May 4, 2017

Author: Thomas Cullen