Neptune Orient Lines - OCBC Investment 2015-12-08: CMA CGM to privatise NOL

NOL NEPTUNE ORIENT LINES LIMITED N03.SI

Neptune Orient Lines: CMA CGM to privatise NOL

 Offer price of S$1.30/share in cash

 Subject to meeting pre-conditions

 Accept the offer

CMA CGM S.A. (CMA CGM) has made a pre-conditional voluntary general offer (VGO) to acquire all shares in Neptune Orient Lines Ltd (NOL) for S$1.30/share in cash.

Recall that the Wall Street Journal first published on 16 Jul that Temasek is looking to sell its stake in NOL, which saw NOL’s share price jumped 7.4% on 20 Jul to close at S$0.94. This offer price represents premiums of 51%, 33% and 31% over 1-month, 3-month and 6-month volume weighted average price (VWAP) through 16 Jul closing price.
Also, the acceptance condition requires valid acceptances that represent more than 50% of the voting rights attributable to the issued share capital of NOL as at closing date of the offer.
With NOL’s majority shareholders (Temasek and its affiliates), which holds 66.8% stake, having given an irrevocable undertaking to CMA CGM to tender all their shares in acceptance of the offer, we think the acceptance condition will almost certainly be met.

All said, the VGO is still subjected to CMA CGM meeting the pre-conditions – being granted antitrust clearances in the U.S., European Union and China.
While CMA CGM officially has until 7 Dec 16 to meet these pre-conditions, it targets to make a formal VGO by mid-CY16. However, CMA CGM has to pay NOL a termination fee of US$100m if any of the pre-conditions are not satisfied by 7 Dec 16.
If the acquisition does go through, CMA CGM’s intentions are to:
1. delist NOL, which requires valid acceptances representing more than 90% of NOL’s shareholdings,
2. maintain high transit volume in Singapore, and
3. expand and strengthen its presence in Singapore, using Singapore as a key hub in Asia and to establish its regional head office here.

The offer price implies a valuation 0.96x P/B, even with the muted outlook of global container shipping industry.
With no clear recovery in sight, NOL trading at ~0.7x P/B before 16 Jul, and the offer being priced at a 35% premium over our FV of S$0.96, we recommend investors to ACCEPT THE OFFER.
Note that there is still the risk of CMA CGM not meeting the pre-conditions, which will lead to a collapse of the VGO.

Eugene Chua OCBC Securities | http://www.ocbcresearch.com/ 2015-12-08

OCBC Securities SGX Stock Analyst Report ACCEPT THE OFFER Maintain ACCEPT THE OFFER 0.96 Same 0.96