NOL
NEPTUNE ORIENT LINES LIMITED
N03.SI
Neptune Orient Lines (NOL SP) - CMA-CGM Make A Pre-Conditional Offer You Can’t Refuse
- CMA-CGM has made a pre-conditional offer of S$1.30 per share for NOL. Offer is subject to approval from anti-trust authorities.
- Temasek will fully divest its 66.8% stake.
- The offer is 0.96x 9M15 book value, a premium of 92% to Hapag-Lloyd’s IPO valuation of 0.5x P/B.
- With no better deals on the horizon, shareholders are advised to accept the deal.
- Maintain HOLD with a revised target price of S$1.30.
WHAT’S NEW
• CMA-CGM make pre-conditional offer of S$1.30 per share.
- French company CMACGM has made a pre-conditional offer of S$1.30 per share for NOL, a 6% premium to its last traded share price of S$1.225. The offer is conditional on CMA-CGM acquiring antitrust approval from authorities in the European Union (EU), the US and China. CMA-CGM has until 7 Dec 16 (12 months) to acquire approval, but anticipates receipt of approval around mid-16.
• Temasek to fully divest its 66.8% share.
- Temasek has irrevocably agreed to fully divest its 66.84% shareholding in NOL. The divestment of their share will result in the general offer, when made, becoming unconditional once acceptance has crossed the 50% threshold.
• Formal offer to materialise only in 2016.
- No formal offer has been made yet, as the deal is subject to all conditions set out in the offer being met/waived. Only then will a formal offer be made for NOL. Till then, the deal is by no means done as a small likelihood exists that the authorities could scupper the deal. A timeline of the transaction is provided overleaf.
• CMA-CGM plans to de-list NOL.
- The French intend to make NOL a wholly-owned private subsidiary and intends to de-list the counter once its shareholdings reach 90%. The stock will continue to remain listed if it doesn’t cross that threshold, by SGX rules.
STOCK IMPACT
• A fair offer for embattled NOL.
- The offer price of S$1.30 per share represents 0.96x 9M15 book value per share of S$1.36 and EV/EBITDA of 16.1x. The offer is the lower of the S$1.30-1.40 range we had highlighted in an earlier email note. Considering that Hapag-Lloyd’s IPO in Nov 15 was done at 0.5x P/B, the 92% premium in P/B multiple is generous by most measures.
- Actual details on how the S$1.30 offer price was reached were not given, besides management’s comment that various factors such as P/B multiples, profitability and synergies post-integration were considered.
• Stock liquidity to be impacted.
- As stated in the press release, CMA-CGM expects to delist NOL if it reaches the 90% limit to start a compulsory acquisition. Even in the event that it does not reach 90%, we expect large acceptances of the offer, which would significantly impact trading liquidity.
- We do not expect a better offer to be made by CMACGM or any other liners in the near term amidst the gloomy container shipping outlook.
• At least US$1b in assets to be sold.
- CMA-CGM has explicitly stated that at least US$1b in assets will be sold upon successful close of the offer. This is part of its strategy to help deleverage the combined group.
- Details were not revealed, but assets being considered for sale include NOL’s vessels and terminals.
• Step-up agreement on NOL bonds to be honoured.
- Management said that the stepup agreement on two of the four outstanding NOL bonds will be honoured. The bonds in question are the S$400m 4.25% due 2017 and S$300m 4.40% due 2019 bonds.
- We note that a “Change in Control” clause exists in the former, which requires the Issuer to redeem all bonds at 100% on a change in control exceeding 50%, failing which the Issuer has to step up the prevailing rate of interest by 150bp.
• NOL to eventually join CMA-CGM’s alliance.
- Until the successful closure of the deal, both NOL and CMA-CGM will function as separate entities, and honour obligations to their respective alliances. Upon completion of the deal, NOL will join CMA-CGM’s alliance.
• To expand its shipping volumes with PSA.
- NOL currently has port agreements with Westport in Port Klang, and PSA of Singapore. CMA-CGM has stated that it intends to keep both in a dual-hubbing strategy, whilst increasing volumes in Singapore.
• Combined entity to have 11.5% market share.
- The combined entity will have a combined fleet of 543 vessels, with a fleet capacity of 2.3m TEU, increasing its market share from 8.8% to 11.5%.
- The CMA-CGM-NOL combined entity will retain its position as no. 3, but further widen its lead against world no. 4 Evergreen.
- By trade routes, CMACGM-NOL will be no. 1 (from no. 4) by capacity on the TransPacific route, no. 2 (from no. 3) on the Middle/East India route and no. 4 (from no. 7) on the Intra-Asia route.
EARNINGS REVISION/RISK
- No change to earnings forecast.
VALUATION/RECOMMENDATION
• Maintain HOLD, with target price raised to S$1.30.
- We raise our target price to S$1.30, reflecting CMA-CGM’s pre-conditional offer price. As a standalone entity, NOL’s earnings and business outlook remain weak and share price is expected to collapse if the deal falls through.
- The combination of NOL with CMA-CGM represents the best opportunity for earnings uplift. Given the weakening shipping outlook, we do not expect better offers to be made in the near term.
- Therefore, this is probably the one and only offer that will allow existing shareholders to exit and maximise their share value.
• Accept the offer.
- Based on the aforementioned, shareholders should accept the offer.
SHARE PRICE CATALYST
- None.
Foo Zhi Wei
UOB Kay Hian
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http://research.uobkayhian.com/
2015-12-08
UOB Kay Hian
SGX Stock
Analyst Report
1.30
Up
1.06
