The Wall Street Journal-20080213-Neptune- TUI Tap Advisers for Tie-Up- J-P- Morgan Chase- Deutsche Bank to Help With Potential Deal
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Neptune, TUI Tap Advisers for Tie-Up; J.P. Morgan Chase, Deutsche Bank to Help With Potential Deal
Full Text (506 words)SINGAPORE -- Neptune Orient Lines Ltd. and Germany's TUI AG have appointed J.P. Morgan Chase & Co. and Deutsche Bank AG, respectively, to advise them on a potential tie-up to create one of the world's largest container-shipping enterprises, people familiar with the talks said.
One person said options for a tie-up include a share swap that would make Neptune part of TUI unit Hapag-Lloyd, with Neptune parent Temasek Holdings Pte. Ltd., the Singapore state-owned investment company, taking a stake in TUI.
Temasek owns 69% of Neptune.
Another possibility is a merger of Neptune and Hapag-Lloyd, with neither Temasek nor TUI directly involved in the deal.
Analysts said that based on recent acquisition premiums, TUI would have to pay S$5.7 billion (US$4.02 billion) for Neptune. Neptune has a market capitalization of S$4.7 billion, but its shares trade at an earnings multiple about 20% lower than TUI's.
"The talks are deadlocked for now on issues like who is going to run the merged company and TUI's reluctance to sell Hapag-Lloyd to a smaller player like NOL," a person familiar with the talks said.
At a fourth-quarter earnings presentation, Neptune Chief Executive Thomas Held declined to comment on the possibility of a tie-up with TUI. TUI has also declined to comment.
Analysts say that existing alliances could set the stage for a bidding war if TUI and Neptune come closer to an agreement. Neptune and Mitsui O.S.K. Lines Ltd. are part of a container-shipping consortium, and the Japanese line may take issue with an expanded German presence. "A deal between the two lines could prevent their own alliance partners from moving forward," a transportation analyst said. "If the deal comes to life, the partners could jump into the fray," the analyst said.
Increased competition in the container-shipping industry from players such as China's Cosco Corp. and Evergreen Marine of Taiwan have put Neptune's Asian business under strain. A recession in the U.S. could crimp demand on its trans-Pacific routes and further squeeze its profit margins.
Mr. Held said he is prepared to participate in industry consolidation. He also said that he has been in contact with investment bankers who have suggested two midsize logistics companies as acquisition targets.
"Last week we got information about two opportunities, but we'll have to make a decision if there's a strategic fit," he said, without elaborating on the identities of the two companies.
Neptune said fourth-quarter net profit rose almost fourfold year-to- year, to US$196 million, due to higher liner freight rates and container volume. The company, however, warned that 2008 might be challenging due to a slowing U.S. economy.
"Based on recent volatility in world financial markets and a slowing U.S. economy, we expect growth in the U.S. container trades to moderate." Mr. Held said. "In other markets, we expect that there will be continuing growth in container shipping, particularly in trade lanes linked with the Asian economies."
The trans-Pacific route, which includes the U.S., contributes about 35% of NOL's revenue, while the rest comes from the trans-Atlantic and the Asia-Mideast region.
