[Updated] Hapag-Lloyd in Merger Talks with UASC

Germany's Hapag-Lloyd is in talks to merge with United Arab Shipping Company (UASC), representing the latest move in the container market to battle a faltering global economy and too many ships.

Hapag-Lloyd shares hit a three-month high on Thursday as it said the talks were based on its shareholders owning 72 percent of the combined business and UASC's shareholders the rest.

Global container shipping, which transports everything from iPhones to designer dresses, is suffering its worst downturn as a combination of weaker consumer demand and overcapacity have forced lines to cut costs and try to build scale.

Hapag-Lloyd gave no further details of the discussions and said there is no certainty of a deal, though a successful merger would create a group with an estimated enterprise value in the region of 7 to 8 billion euros ($9 billion).

Kuwait-headquartered UASC, which is owned by Gulf Arab states and in which Qatar holds a majority stake, did not immediately respond to requests for comment.

"There is so much price pressure that all shipping groups are looking for mergers and this one won't be the last," a transport banking source said.

"Hapag in particular had to look for a partner as it was left out of recent tie-ups and alliance regroupings. It was at risk of becoming a sub-scale player lacking the full range of destinations."

However, a shipping industry source said it is unclear whether there would be sufficient benefit to UASC.

"Even with market pressure, it will take some convincing, given UASC's state ownership," the source said, adding that Hapag-Lloyd is likely to gain most from a tie-up.

DEAL FLURRY

The talks follow a takeover by France's CMA CGM of Singapore's Neptune Orient Lines to cement its position as the market's No.3 player behind Switzerland's MSC and Denmark's Maersk, the industry leader.

Other recent deals include a merger of state-controlled Chinese lines COSCO and China Shipping.

Container lines have also formed alliances aimed at saving costs and pooling runs to various destinations.

China COSCO Shipping and France's CMA CGM said on Wednesday that they had formed an alliance on Asia routes, making the partnership bigger in capacity than Maersk Line and MSC's rival 10-year agreement.

Maersk's Chief Commercial Officer Vincent Clerc said its arrangement with MSC is unaffected by its rivals' Asia announcement, adding that his company welcomes consolidation.

"The container shipping industry is fragmented and consolidation will enable carriers to create economies of scale and to optimise networks," Clerc said.

Hapag-Lloyd merged with Chile's Compania Sud Americana de Vapores (CSAV) in December 2014, helping it to swing to profit last year, and another deal could sit well with shareholders.

Klaus Michael Kuehne, Hapag-Lloyd's third-biggest shareholder with a 20 percent holding, recently said he believed the company was too small to thrive alone.

CSAV owns 31 percent of Hapag-Lloyd, while HGV, the city of Hamburg's investment holding company, owns 21 percent.

European tourism group TUI Group , which still holds a little more than 12 percent of Hapag-Lloyd, said it supported moves that would add value and is sticking to its goal of selling the stake.

Hapag-Lloyd shares rose nearly 15 percent to 18.80 euros by the close, having touched an intraday peak of 19.20 euros, a three-month high.