Is The Privatisation Offer For Neptune Orient Lines Ltd Fair To Its Minority Shareholders?

After months of rumours and speculation, shipping firm Neptune Orient Lines Ltd (SGX: N03) has finally announced that it’s going to be taken private.

CMA CGM Group, one of the largest shipping companies in the world, has launched a cash offer for all of Neptune Orient Lines’ shares at S$1.30 apiece. Temasek Holdings, one of the investment arms of Singapore’s government, has decided to sell its entire 66.8% stake in Neptune Orient Lines to CMA CGM as part of the offer.

Temasek Holdings obviously thinks the Neptune Orient Lines deal is a fair one given that it has agreed to sell. But the thing is, is the offer a fair one for minority investors of Neptune Orient Lines?

The offer price represents a 48.6% premium to Neptune Orient Lines’ share price on 16 July 2015, the last day of trading prior to the appearance of announcements and media reports regarding a potential sale of the company.

According to Neptune Orient Lines’ number-crunching, a consolidation with CMA CGM will result in a shipping outfit with a total capacity of about 2.4 million TEUs (Twenty-foot equivalent unit), a fleet of 563 vessels, and an 11.5% market share of the global container shipping industry. CMA CGM thinks that the purchase of Neptune Orient Lines will give the combined entity a much larger scale to compete in the global market.

Minority shareholders of Neptune Orient Lines might be left with very little choice if they do not accept the offer. The company has been suffering losses for years and had also seen its borrowings grow; these are apparent in the chart below. The company also had to sell valuable assets – like the recent sale of its logistic business – in order to stay afloat.

Neptune Orient Lines' net income and net-debt (total borrowings minus cash)
Source: S&P Capital IQ

Without the support from CMA CGM, it seems like Neptune Orient Lines will be in a fierce uphill battle in its efforts to turnaround its business. In this sense, the buyout offer from CMA CGM could even be seen as a blessing for minority shareholders of Neptune Orient Lines.

However, the deal isn’t done and dusted yet. CMA CGM would need approvals for the merger from its own shareholders as well as regulators in Europe, China, and the United States.

With CMA CGM needing to jump through a number of hoops before the purchase of Neptune Orient Lines can be confirmed, there’s a slight risk that the deal may not go through. This could be why  Neptune Orient Lines is currently trading at S$1.22 per share, slightly below the offer price of S$1.30.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Stanley Lim doesn't own shares in any companies mentioned.