container ships © Jennifer Thompson
© Jennifer Thompson

We witnessed the typical ’long squeeze’ on Friday, when the shares of Hapag-Lloyd collapsed 20% soon after the German carrier announced its revised guidance.

They haven’t recovered since, which is something M&A arbitrageurs closely monitor; also because the stock of AP Møller-Maersk Group (APMM) has been more resilient in the past few days after testing new lows, almost daily, in recent weeks.

While Hapag was on the path to recovery, at least in terms of corporate decisions and stronger earnings power, the ...

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  • Chris

    July 24, 2018 at 7:24 am

    Thanks for the article. Interesting read.
    I do agree that both shipping lines might be looking for another suitable match to reach a larger scale and cut costs. However, I feel that a deal between the two is unlikely for several reasons:

    1.) Hapag is still partially state-owned
    While their share may have decreased significantly the state of Hamburg will be a deal breaker once it comes to an acquisition or merger with a stronger partner. They would come into a political turmoil after having invested billions of taxations money to “secure” the position of the port of Hamburg to “save” jobs that are dependent on the high throughput volume of Hapag and its’ alliance partners.

    2.) Hanseatic arrogance / pride
    Correct me if I am wrong, but I think I just recently read an article that Mr. Kuehne was outraged by the claims that CMA CGM could take-over Hapag and may have suggested that IF a merger were to happen it could only happen the other way around making Hapag the lead in such a deal. Looking back at the 150 years history this firm shows a certain arrogance and/or pride in their past accomplishments, which in the current market situation may seem completely unjustified. But like you mentioned in your analysis: If a deal were to happen, it would have to be on Hapag terms – at least as long as the financial position / backing of the stakeholders allows. I believe this is also one of the major reasons why the attempts of a merger between Hapag and Hamburg Sued never came to fruition: The brand stays. The history prevails. I heard that there is also a funny (and a bit sarcastic) nickname for Hapag (which dates back to the 21st century), which refers exactly to their upnose behaviour. Please do not get me wrong here, from an outside perspective I do enjoy how Rolf Habben Jansen is trying to shape up the company and to change the image, but I do believe it will take a few more years until they have reached that point. But maybe the mergers will help.

    3.) Cartel authorities / South America-Europe Trade
    APMM already had troubles with the take-over of Hamburg Sued a few years back and needed to sell a certain stake of their tonnage business to ensure that the deal will go through. With Hapag (due to the merger with CSAV) being one of the major competitors of Hamburg Sued on that trade I am sure that the authorities would be extra cautious. From the perspective of APMM I reckon it would be rather careless to go through the effort and the financial burden or a M&A, only to probably having to reduce the capacity on one of the most profitable trades in the business (since it is the least impacted from overcap & trade wars).

    Nevertheless, I have heard the rumours about an M&A from time to time again over the past couple of years and I remember someone bluntly asking Rolf Habben Jansen these cynical questions not if but WHEN he will be trying to sell Hapag to APMM – but right now, I do not believe that this will happen. But what about the Taiwanese carriers? Technically, they have remained the only ones that have not merged. I believe there are a lot of issues to be resolved that I can think of at the top of my head, like e.g. government stake of Yang Ming, but I would be curious to read your thoughts.

    Thank you for the great analysis and sorry for the belated feedback. Keep up the good work.

    • Ale Pasetti

      July 24, 2018 at 9:51 am

      Hi Chris,

      That’s fantastic feedback, thank you very much indeed for taking the time to highlight some key points concerning what effectively I consider to be the possible downside risk of betting on such a tie-up, which remains the most likely combination in the industry by 2020, in my opinion.

      I also had a followed up story published here (Analysis: Hapag-Lloyd, CMA CGM, K+N and ‘a remarkable businessman’), in case you missed it, which clearly validates some of the points you made about K+N.

      More specifically:

      1) Agreed (re: political risk), that’s something I looked at in the past through the HHLA angle, and it is worth paying attention to it going forward. Thanks for the kind reminder, it adds value to the story!

      2) Amen.

      3) I agree, there could be regulatory risk, but there is always a way around it and surely CMA/Cosco could sneak in and help the deal go through, right? Re the two Taiwanese carriers, YM is troubled but is still alive and cash flows have mildly improved in the past few weeks (also, I hear it could easily raise new equity for another quarter or two). Clearly, Evergreen could be the ultimate winner. (Do a quick search on The Loadstar for more info…)

      I have just filed another K+N analysis given the response we received, and I looked at the horizontal FF integration angle. Your feedback would be gratefully received once it is published.

      Best regards,