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Given the recent news on a Zim takeover, Loadstar Premium has opened up this relevant September article to Loadstar readers.
It’s certainly a juicy one for the gossips – Zim chief exec Eli Glickman is reportedly attempting an MBO with outside investors at a knock-off price; Zim shareholders respond by hiring US investment bank Evercore to advise; then the rumour emerges that Maersk may be thinking of making an opportunistic offer…
The first two are solid facts, the third remains very much open to question.
“Reports suggested ZIM had hired the investment advisor, in part, because the offer from CEO Eli Glickman and finance partner Rami Unger is expected to be below expectations.
“When news first broke in mid-August of the potential buyout, the group was said to be offering $20 per share for the ZIM stock, a near 30% premium on its then share price, and effectively valuing the company at up to $2.4bn,” a recent Alphaliner note says.
(Source Google – please note as of publishing date, ZIM trades at $20/share; market cap below calculated based on share price end of Sept)
According to S&P’s CapitalIQ platform, its current market cap is $1.76bn, and it’s fair to say that the general consensus across the industry is that it’s hard to see how the addition of Zim, in a best-case commercial scenario, outweighs the significant – and glaringly obvious – geopolitical risks that such a deal would bring to AP Moller Maersk.
Here’s the thing though, some questions beget more questions, and here’s a few more:
Why would you want to buy Zim?
Again, as per Alphaliner: “The thinking behind the joint buyout bid remains somewhat unclear, however, especially with the container market headed towards a difficult period of lower rates, increasing capacity, and continued geopolitical instability.
“ZIM’s own full-year forecast raises the possibility of losses in H2, with operating income expected between –$62m and +$338m for the period, with Q4 regarded as highly unpredictable.”
To paraphrase Alexander Pope: the container shipping market currently looks like the sort of place where angels fear to tread… and fools rush in. The market looks to be on the verge of a downturn – although it has looked like that for the best part of two years and fresh surprises have continued to prop it up – and Zim itself appears to have seen better days:
Source: Alphaliner
Warren Buffet also paraphrased Pope when he said: “Be fearful when the markets are greedy and greedy when the markets are fearful,” which may well be the exact reasoning behind the Glickman-Ungar bid – that enough Zim shareholders will get the jitters about the company’s future to head for the exit.
Who would want to buy Zim?
99.9% chance that it is not MSC – although it is currently on an M&A spree that is unparalleled to anything the logistics industry has ever seen, all its plays are on land: ports, trucks, trains and logistics. In contrast, it rarely looks at buying other carriers and Premium understands its owners have long held the view that success in liner shipping is simply a question of market share and that since there are cheaper ways to acquire tonnage and goodwill means very little, acquiring other lines is a futile exercise. In any case, it really doesn’t need Zim’s tonnage – MSC’s orderbook stands at 2.27m teu, almost three and a half times the size of Zim’s entire existing fleet of 756,000 teu.
Of the remaining top 10 carriers – Zim is number nine – it is the three European carriers Maersk, CMA CGM and Hapag-Lloyd that have historically used M&A to significantly grow their businesses, and they wouldn’t be sitting at numbers two, three and five in the liner rankings without a long list of previous buys and tie-ups. But the French and German carriers would face the same geopolitical risks and again, for what? Some 750,000 of vessel capacity that is largely on long-term lease to Zim.
[On a purely speculative basis, Premium does wonder if container shipping could be used as a bridge to rebuild relations in the Middle East if some sort of deal between CMA CGM, with its deep ties to Lebanon, and Zim could be engineered by the French and Israeli governments? Seems ridiculous to posit in the current circumstances with the current personnel but the Israeli government’s 0.03% “Golden Share” may still play a role…)
Source: CapitalIQ
Where does that leave us?
Pretty much back at the beginning – that the most likely future ownership structure of Zim will either be some form of external investor or it simply continues in its existing form.
The carrier is in far better shape than a decade ago, with cash reserves slightly higher than its debt, and onerous daily charter hire rates on its fleet replaced by long-term leases that are easier to manage over shipping cycles, and it may well transpire that Glickman’s offer is the best Zim’s shareholders will receive.
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