FRANKFURT/LONDON (Reuters) - Germany's Hapag-Lloyd (>> Hapag-Lloyd AG) is in talks to merge with United Arab Shipping Company (UASC), 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 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 slash costs and try to build scale.
Hapag-Lloyd gave no further details of the discussions and said there was no certainty of a deal, which if it comes off is estimated to create a group with a combined enterprise value in the region of 7 to 8 billion euros (6.27 billion pound).
Kuwait-headquartered UASC, which is owned by Gulf Arab states 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 one," 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 re-groupings. It was at risk of becoming a sub-scale player lacking the full range of destinations."
The talks follow a takeover by France's CMA CGM [CMACG.UL] of Singapore's Neptune Orient Lines (>> Neptune Orient Lines Ltd.) to cement its position as number three, behind Switzerland's MSC and Denmark's Maersk (>> AP Moeller Maersk A/S), the industry leader.
Other recent deals include a merger of state-controlled Chinese lines COSCO [COSCO.UL] and China Shipping [CNSHI.UL].
Container lines have also formed alliances aimed at saving costs and pooling runs to various destinations.
"Vessel sharing agreements have been increasingly used to try and combat sustained market overcapacity," said Anthony Woolich, with law firm Holman Fenwick Willan.
China COSCO Shipping and France's CMA CGM said on Wednesday they had formed an alliance on Asia routes in another industry shake-up. This would make the partnership bigger in capacity than Maersk Line and MSC's rival 10-year agreement.
FRAGMENTED MARKET
Vincent Clerc, Chief Commercial Officer with Maersk, said its arrangement with MSC was unaffected by the Asia announcement by rivals, adding that it welcomed consolidation.
"The container shipping industry is fragmented and consolidation will enable carriers to create economies of scale and to optimise networks," Clerc said in an email.
Hapag-Lloyd merged with Chile's Compania Sud Americana de Vapores (CSAV) in December 2014, helping it to swing to profit last year.
Nonetheless, 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, and HGV, the city of Hamburg's investment holding company, 21 percent.
European tourism group TUI Group
At 1324 GMT, Hapag-Lloyd shares were up 12.1 percent at 18.3 euros, after earlier touching a three month high of 18.9 euros.
(Additional reporting by Arno Schuetze, Jan Schwartz, Tom Arnold, Freya Berry, Sophie Sassard and Victoria Bryan; Editing by Lina Saigol and Alexander Smith)
By Vera Eckert and Jonathan Saul
