High stakes in high seas

10 May 2005

Danish shipping giant Maersk is buying the Dutch firm for E2.3bn, with a healthy premium built in. It makes sense for Nedlloyd to sell now, just as freight prices are falling. It makes less sense for Maersk unless the move is defensive.

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Danish shipping giant MoellerMaersk has agreed to buy Dutch group Royal P&O Nedlloyd for E2.3bn in cash, a merger that would create a company twice as big as its nearest competitor.

Maersk said it will offer E57 a share for Nedlloyd, a 40% premium over the company's share price before news of the deal leaked on Monday. Nedlloyd has said it will back the offer.

Maersk, the world's largest container shipping company, has a market capitalisation of $39bn. Rotterdambased Nedlloyd, the world's fourth largest container line, has net debt of $347m (E266m) and a pension deficit worth another E215m.

The combined company would have a global market share of 17%, twice the level of its biggest rival, Mediterranean Shipping Co. Nedlloyd, in which British ports company P&O has a 25% stake, currently has a 5% share of the world market.

Freight shipping rates have soared in recent years thanks to growing Chinese exports, rising world trade and low shipping capacity. The Baltic Dry Freight Index sextupled between 2002 and the end of 2004, but it has since fallen back on fears that container supply will outstrip demand this year and the next.

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