NEW YORK — German tourism and shipping conglomerate TUI AG has acquired Canadian shipping company CP Ships Ltd. in a $2 billion cash deal that will create the world’s fifth-largest shipping company.
The deal also marks the second large-scale acquisition in the sector this month.
The purchase, announced Aug. 21, represents a premium of about 28 percent to CP Ships’ average closing share price over the past three months and includes the assumption of $316 million in debt. The deal is expected to close during the fourth quarter, provided it gains regulatory approval and two-thirds of CP shareholders accept terms of the deal. CP’s board immediately endorsed the terms of the all-cash transaction.
Michael Frenzel, TUI’s chief executive officer, said during a press conference announcing the deal that the acquisition was in keeping with the company’s restructuring from a predominantly industrial conglomerate to its current focus on tourism and shipping. The company’s tourism business consists of 3,200 travel agencies, more than 1,000 aircraft, 290 hotels and a cruise ship business. Since acquiring Hapag-Lloyd in 1997, Frenzel said the company has invested 1.8 billion euros, or about $2.2 billion at current exchange rates, to expand its fleet and more than double capacity.
The addition of Montreal-based CP Ships will vault TUI’s shipping business from the world’s 13th largest to fifth largest, a feat Frenzel said could not be achieved organically. The addition of CP Ships brings the number of vessels in TUI’s fleet to 139, with an additional 17 ships on order.
The acquisition also will more than double TUI’s container volume to more than 4 million 20-foot equivalent units, or TEUs — the standard maritime industry measurement used to count cargo containers — a year. CP’s 82 ships transported 2.3 million TEUs in 2004, while Hapag-Lloyd’s 57 ships transported 2.4 million TEUs.
“We have steadily built up our shipping division because we have recognized that the significance of container shipping will increase in parallel to the extremely dynamic growth of globalization, and that it holds prospects of excellent returns,” said Frenzel during the conference. “We see additional potential in our second major revenue generator, i.e., shipping, and we now see the chance to make a big and profitable leap forward in this sector — and not by merely relying on organic growth.”
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The majority of business for both Hapag-Lloyd and CP stems from trans-Atlantic routes. However, Pacific trade routes represent 23 to 25 percent of both companies’ businesses. Hapag-Lloyd reported revenues of 2.7 billion euros, or $3.36 billion at average exchange, and earnings of 279 million euros, or $346.9 million, in 2004. In comparison, CP reported $3.7 billion in revenue and earnings before taxes of $248 million.
News reports regarding the acquisition surfaced three days before the official announcement, prompting TUI to issue a statement addressing what were at that point still rumors. TUI pointed to the approval of Maersk Sealand’s acquisition of P&O Nedlloyd as an example of the rapid pace of consolidation in the shipping industry and the need for expansion through acquisition.
“The worldwide container shipping industry is in a phase of consolidation and concentration,” said the company in its Aug. 19 statement. “Against this background, TUI and Hapag-Lloyd have discussions with other container shipping companies on a regular basis, including CP Ships.”
Maersk, the world’s largest shipping company, completed its takeover of P&O on Aug. 11, paying more than $2.8 billion in an all-cash deal to add P&O’s 156 ships and 428,000-TEU capacity to its fleet of more than 300 vessels. Maersk announced its intent to acquire the company in early May, offering P&O shareholders 57 euros a share. The offer represented a premium of 37.5 percent to the company’s average closing price over the preceding three months, and by early August, more than 95 percent of shareholders had accepted the buyout.