Neptune Orient Lines - DBS Research 2015-12-08: Proposed acquisition by CMA CGM

Neptune Orient Lines - DBS Research 2015-12-08: Proposed acquisition by CMA CGM NOL NEPTUNE ORIENT LINES LIMITED N03.SI 

Neptune Orient Lines - Proposed acquisition by CMA CGM 

  • CMA CGM announces takeover offer for NOL at S$1.30 per share, in a proposed all-cash deal 
  • Deal completion expected in 2H16 
  • The offer is attractive at P/B of 0.96x; shareholders should accept the offer. 

Offer price of S$1.30 in an all-cash deal. 

  • CMA CGM S.A. has made a Pre-Conditional Voluntary Cash Offer for all of the issued and paid-up ordinary shares of NOL. The offer price of S$1.30, in an all-cash deal, represents a 6.1% premium over the last traded share price of S$1.225. 
  • We believe the M&A premium has been largely priced in, following the rumours and news of potential takeover which surfaced four months ago. 
  • The offer is conditional on CMA CGM receiving at least 50% of the voting rights attributable to NOL’s issued share capital at the Closing Date, which is likely sometime in mid-2016 or 3Q16 based on the indicative timeline provided. 
  • Lentor Investments Pte Ltd (owned by Temasek Holding) has provided an irrevocable undertaking to CMA CGM to tender its shares (along with any other shares held by Temasek Holdings and Startree Investments Pte Ltd, an affiliate) in NOL in acceptance of the offer which, in total, amount to approximately 66.84% of the outstanding shares in NOL. Hence, the 50% threshold should be reached providing certain pre-conditions, namely antitrust approvals, are met. 

Deal valuation is attractive and fundamental upside for the stock is limited; shareholders should accept the offer. 

  • The proposed offer price of S$1.30 values NOL at a 16.1x EV/LTM EBITDA and a P/B of 0.96x; NOL’s listed peers are valued at an average of 12.3x EV/LTM EBITDA and 0.66x P/B. Thus, in terms of valuation, the offer represents a 30% premium compared to peers on an EV/LTM EBITDA basis and a 44% premium on a P/B basis. 
  • It also represents a 30% premium over our latest target price of S$1.00, which was based off a 0.8x P/B peg to reflect deteriorating earnings. 
  • NOL faces a persisting oversupply situation in the container shipping industry: fleet growth of 6.5% from 2015-2017 is expected to outstrip demand growth of 3-4%. In addition, we are forecasting that FY16 will be another year of red for the liner, with c.US$200m in core losses expected as freight rates remain depressed across various routes. 
  • Any upside in terms of fundamentals is therefore limited, in our view. 
  • Shareholders should accept the offer.

Suvro SARKAR DBS Vickers | http://www.dbsvickers.com/ 2015-12-08
DBS Vickers SGX Stock Analyst Report ACCEPT THE OFFER Maintain ACCEPT THE OFFER 1.30 Same 1.30