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France's CMA CGM made merger approach to Germany's Hapag-Lloyd-sources


By and Schuetze

LONDON/FRANKFURT (Reuters) - The world's no. 3 container shipping line, of France, has made an exploratory approach to German rival over a possible merger as players in the sector hunt for tie-ups to beat depressed conditions, say.

Three with knowledge of the matter, who declined to be named due to market sensitivity, said had initiated discussions in recent months with Hapag-Lloyd, which is ranked fifth globally, to look into some form of share merger of the two groups.

"The idea which has been proposed... would be a non-cash merger," one source said.

Key shareholders had rebuffed the proposition, which would narrow the gap to Line, the sources said.

A spokesman, asked whether such a deal had been discussed, said: "These market rumours are without substance."

A CMA declined to comment.

shares, which had been trading lower, surged by more than 10 percent following the report and were 3 percent higher at 1250 GMT.

The global container shipping sector continues to struggle with an oversupply of vessels that has plunged the sector into an almost decade-long slump, its worst on record, forcing some companies out of business and others to combine forces to benefit from economies of scale.

in late June slashed its full-year profit forecast, saying that freight rates had recovered more slowly than expected while fuel and charter costs had ballooned.

A trade spat between and the United States, which has escalated into an outright commercial war, is also adding to cost worries as trade-route demand becomes more unpredictable.

All three sources said the approach had been rejected by Hapag's major shareholders - CSAV of Chile, Germany's Kuehne family and HGV, which manages the investments for the German city-state of

"The group of key shareholders holding the Hapag majority do not want a deal right now," a second source said.

CSAV owns 25.8 percent of Hapag-Lloyd, while Kuehne owns 25 percent and 13.9 percent.

"There's a fear there that Hapag would eventually be left as a unit of the French peer. (Hamburg) wants to make sure the headquarters remains in and that remains a German company," the source added.

The third source said: "The sense is that there was nothing in it for Hapag's principal shareholders."

Kuehne declined to comment, while a for Hamburg's did not respond to multiple requests for comment. CSAV did not immediately respond to a request for comment.

Both and Hapag have made acquisitions, but a merger could help them compete better on key global trade routes. While Hapag is strong on routes between and the and in the Middle East, CMA CGM has scale in

A wave of consolidation in recent years has shrunk the number of global container lines. Deals have included takeover of Germany's Hamburg Sud, but the market has continued to struggle.

paid 3.7 billion euros ($4.36 billion) to acquire from owner the said, in that deal, there had been exploratory discussions for some time before anything concrete emerged.

CMA and Hapag, with net debt of $7.2 billion and $6.7 billion respectively at the end of the first quarter - greater than their combined equity - might be hamstrung to do a cash deal.

CMA CGM is privately-owned by the Saade family. It reported a $701 million net profit for 2017, confirming its turnaround after a $452 million loss in the previous year.

CMA's founder died last month and his son took over as last year.

Finance sources said CMA CGM has been looking for ways to bolster its market presence and also cut costs further. This follows its acquisition of Singapore-based line in 2016.

Hapag completed its takeover of Gulf counterpart UASC in March 2017, to become the world's no.5 container line. Finance sources said the group has faced difficulties with the integration of UASC, which had also added to costs.

Hapag said in May that he did not expect any large mergers in the sector in 2018, adding that Hapag was currently "not very active" in scouting the market for takeover targets.

($1 = 0.8486 euros)

(Additional reporting by Vera Eckert in Frankfurt and Gus Trompiz in Paris; Editing by Adrian Croft)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Mon, July 09 2018. 18:25 IST