Nedlloyd-P & O Merger Creates $4bn Giant

Nedlloyd and P&O will each take a 50 per cent stake in a new company joining their container shipping interests, to be called P&O Nedlloyd Container Line.

Nedlloyd will pay P&O $175 million to equalise the shareholdings.

With a combined turnover of nearly $4 billion and a net asset value of some $1.5 billion, the new company will be one of the largest in world container shipping, a joint statement said.

The merger will create the world's largest container company in terms of fleet size, or standing container slots, and the third equal in terms of business volume, behind Maersk and Evergreen and alongside Sea-Land at 2.3 million twenty-foot equivalent units (TEUs) per year.

 

The TEU is the standard measure of volume in container shipping.

The companies said savings of more than $200 million a year had already been identified from a total $3.9 billion cost base. The savings will be achieved by losing up to 1,400 jobs from an existing combined workforce of around 9,400, greater network efficiency and reduced inland and terminal costs.

P&O Nedlloyd, to be jointly chaired by Lord Sterling of P&O and Leo Berndsen of Nedlloyd, will begin operations by the year-end, following due diligence investigations and regulatory procedures.

The new company will have an excellent management team and a strong balance sheet. P&O Nedlloyd will be a world force in container shipping, Sterling said. Headquartered in London but with its fleet managed from Rotterdam, it will operate 112 owned and chartered container ships and 540,000 TEU of owned and leased container boxes. Analysts were quick to praise the merger plans.

In an industry with strong potential economies of scale, analysts said it was inevitable that companies move beyond large alliances to outright mergers and, as the first in the sector to do so, Nedlloyd and P&O would be the first to reap cost savings, and benefit from complementary routes worldwide.

The cost savings are very much higher than Nedlloyd has so far been making with its Global Alliance. said Pieter van Gelder, analyst at Delta Lloyd Bank.

ING Baring Research immediately upgraded Nedlloyd from a sell to a buy.

We view this move as the best long-term move for Nedlloyd in order to survive in the price cutting environment of the container shipping market, said ING Baring's head of equity research, Thibaud de Guerre.

However, analysts were left wondering about the future of P&O's and Nedlloyd's respective worldwide shipping alliances.

Nedlloyd works within a global shipping consortium with American President Lines (APL), Mitsui OSK Lines and Orient Overseas Container Line.

P&O's alliance groups Hapag-Lloyd, Neptune Orient Lines of Singapore and Nippon Yusen Kaisha.

They can't be in both alliances. There will have to be some reshuffling, said Gert Jochems, analyst at NIB Strating Securities.

Nedlloyd will take a 200 million guilder ($120 million) extraordinary charge this year to cover the effects of the merger.

Finance director Haddo Meijer said the charge would result from a write-down in the value of ships which will be transferred to the newly formed venture, partially offsetting first-half extraordinary gains of 273 million guilders, largely the result of the sale of Nedlloyd's offshore drilling unit Neddrill.

In late morning Amsterdam trading, Nedlloyd shares gained 6.10 guilders, or 15 per cent, to 45.60 guilders apiece.

In London, P&O stock added 19 pence to 549 pence.