E.U. Backs Hapag-Lloyd, UASC Merger

Hapag-Lloyd

By MarEx 2016-11-23 16:23:02

The European Commission on Wednesday said it has given its conditional approval to a merger between German container shipping line Hapag-Lloyd and the United Arab Shipping Company (UASC).

The merger would create a combined company worth about seven to eight billion euros ($7.5 to $8.6 billion). It would be the world's fifth largest shipping firm, with access to the Asia-to-Europe trade route and trans-Atlantic and trans-Pacific routes.

"Both companies operate in the container liner shipping sector," the Commission said. "The clearance is conditional on the withdrawal of UASC from a consortium on the trade routes between Northern Europe and North America, where the merged entity would have faced insufficient competitive constraint."

UASC is majority-owned by the government of Qatar. Hapag-Lloyd is in the process of acquiring United Arab Shipping Company after earlier acquiring CSAV.

Through the deal, Hapag-Lloyd gains access to bigger ships on the important Asia to Europe trade route. UASC for its part gets wider access to trans-Atlantic and trans-Pacific loops, where Hapag-Lloyd is strong.

Hapag-Lloyd expects to reap a third of targeted annual synergies of $400 million from its planned merger with UASC next year, and realize them fully from 2019.

The enlarged company will also be the key player in a new shipping alliance, THE Alliance, due to start in April next year. THE Alliance plans to deploy a fleet of more than 240 modern ships in the Asia/Europe, North Atlantic and Trans-Pacific trade lanes including the Middle East and the Arabian Gulf/Red Sea.

Hapag-Lloyd company swung into the red in the first half of this year.

The container shipping industry is suffering the worst slump for 50 years caused by overcapacity and weak global economic growth. Overcapacity and poor economic growth globally has left hundreds of ships idle in the industry's worst downturn since its origins in the 1950s and 1960s, causing the collapse in August of South Korea's Hanjin Shipping, then the world's seventh-largest container shipping company. Analysts expect capacity to worsen at least over the next three years.