Hamburg Süd buy will cost Maersk $4bn, but could save $500m a year
Maersk Line is to pay $4.03bn to acquire Hamburg Süd, following approval from the boards ...
As soon as I returned to work after the Christmas break, news broke that Maersk had begun its promised digitisation revolution.
The partner it chose to pilot a booking project was OneTouch, and its owner, Alibaba, is one of the world’s largest e-commerce platforms as well as a major shipper competing with Amazon for worldwide dominance in e-commerce.
The deal per se represents a meaningful strategic development for Maersk Line – it is “a first in container shipping”, we pointed out on 4 January, and comes not only as Amazon is making inroads into the $350bn ocean shipping market, but also other players are benefiting from unconventional funding sources backing new entrants.
Other transport and logistics news passed almost unnoticed, but I was also drawn to headlines pointing to curious developments in the way smaller companies with a hi-tech slant are looking to finance business plans in emerging markets, where Maersk has set a bar high since the credit crunch hit global trades.
In fact, the International Finance Corporation – which acts as the private sector lending arm of the World Bank, often associated with commodity-related projects – is participating in a round of funding backing logistics start-up Blackbuck, it emerged in mid-January, in which it is reportedly expected to contribute $10m for a minority stake.
The IFC might be willing to support a business-to-business proposition that directly connects shippers with truckers via an on-line platform where customers book their freight.
Aimed at small Chinese exporters, American Shipper defined the Maersk-Alibaba tie-up as a “sign of the changing times (…) in the rapidly changing ocean freight procurement space”.
If this deal does represent a defining moment for Maersk, what is the possible hangover?
One key economic moat for Maersk has historically been its ability to be perceived as a best-in-class freight and container shipping operator. As such, its reputation must be preserved by finding the right partners to mutually help it grow its services worldwide, while offering the opportunity of teaming up with the world’s largest box shipping player.
In that context, Alibaba surely has a lot to offer.
For example, CNN reported in mid-November that China’s Singles Day had “smashed records yet again”.
“The total value of orders reported by e-commerce giant Alibaba during this year’s online shopping bonanza hit $17.8bn, easily topping the previous record of $14.3bn set in 2015. That’s more than Black Friday and Cyber Monday combined,” it wrote.
While the allure is obvious, given the traffic and growth rates Alibaba generates, a top-down approach indicates there remains an obvious macroeconomic risk in joining forces with a company that could find itself in the middle of a war of currency and words between the US and China. In this context, it is possible that the North American Free Trade Agreement will be only a tiny problem for Maersk.
In other words, although the deal it sealed with its e-commerce partner is rather small – Alibaba didn’t mention it in its interim results – I have to wonder whether the Chinese company is actually the right partner for the Danes. When the tie-up was announced, the headline from Splash 24/7 was unequivocal. It read: “Alibaba jumps ahead of Amazon with Maersk tie-up”.
“Alibaba’s move to parent with Maersk Line should be seen as a game of one-upmanship,” it added.
Financials and more
Financially, Alibaba is on the right path, at least based on reported numbers. In a nutshell, its third-quarter figures are reported in the first table below, while other headline figures follow.
I will not bore you with the speculation surrounding Alibaba’s magic numbers and its corporate structure, but it is worthwhile noting that the Chinese behemoth recently “rejected a report that claims a ‘high-up’ whistleblower in the company is working with US authorities to investigate its accounting practices”, CNBC reported, and it has been on the radar of other news agencies since it listed on the New York Stock Exchange in September 2014.
Ever since, the Securities Exchange Commission has become tougher in the way it tries to tackle certain affairs, while Jay Clayton – a “prolific” Wall Street attorney, as Quartz labelled him – has been “tapped by President Trump to chair the Security Exchange Commission, which is charged with protecting investors from fraud”.
Quartz added that “Clayton, a partner at Sullivan & Cromwell, boasts a career encompassing some of the largest capital-markets transactions”, including the $25bn US public stock offering of Alibaba.
Reputational risk is something Maersk can do without, of course, particularly with regard to “selecting new partners with whom to build a solid long-term relationship”, a banking source argued, and there might be very little possible damage, if any, here.
“But if China tops Trump’s agenda, Maersk could be caught off guard in the Far East, where it still has ambitions to match,” my source added. Then, inevitably, its strategy in China would have to change, perhaps instead leaning towards other western partners boasting stronger bargaining power.
Maersk stock has risen almost 50% since the day before its corporate re-organisation was announced last summer, which should have not surprised our readers, but a witch-hunt is under way in the industry after a year that arguably represented the most turbulent in container shipping’s most recent history.
“Following the bankruptcy of Hanjin, Taiwan’s Yang Ming is now the container line in the greatest financial danger, according to a research paper” from Drewry Financial Research Services, we reported earlier this month.
The world’s ninth-largest carrier hit back last week stating that “is not in default of any obligations and suggestions otherwise are patently false” – yet some of my banking sources speculate that more bankruptcies are coming.
Luckily, there is also good news, and that comes from Hapag-Lloyd, which saw its stock price surge over 50% in less than two months after it received the green light from regulators for the UASC deal, rather than thanks to particularly solid financials.
Moreover, a successful refinancing round also gave it a boost on the stock exchange – and I am inclined to speculate that our coverage in mid-December also contributed to boost its prospects as an M&A candidate.
For Maersk, I reckon Hapag-Lloyd could be the next big thing in emerging markets, rather than seeking deeper ties in China through Alibaba. But then if e-commerce stuff is on the agenda, I wouldn’t rule out Amazon instead.