By Mike Wackett

At an extraordinary general meeting at CSAV, 84.5 per cent of shareholders voted in favour of a deal that would see the Chilean carrier merge with Germany’s Hapag-Lloyd, exchanging all of its container assets for a 30 per cent stake in the new entity, which would then rank as the fourth-biggest container line in the world and making it the largest single shareholder in the new entity.

Shareholders that did not attend the meeting have until April 20 to approve the transaction. So far less than one per cent of the shareholders have voted against the tie-up, but should this exceed five per cent, CSAV may pull the deal, said CEO Oscar Hasbun. “We hope that on April 20 we can confirm that fewer than five per cent of withdrawal rights were exercised and the negotiation with Hapag Lloyd can continue its course,” he added.

Assuming that the proposed merger also passes due diligence tests, CSAV said it expected to sign a binding agreement in the next 30 to 40 days and close the deal by the end of the year. In the new Hapag-CSAV structure, the City of Hamburg’s shareholding would be reduced to 25.8 per cent from its current 36.9 per cent, Kuehne Maritime’s to 19.7 per cent from 28.2 per cent, TUI to 15.4 per cent from 22 per cent and minority shareholders to 9 per cent from 12.9 per cent.

CSAV said the combined company would achieve cost savings of almost $300 million by 2017 from optimisation of fleet, terminals, intermodal operations and equipment. Indeed, despite radical cuts to its services over the past three years – which saw its monthly throughput fall to 144,000 TEUs this January, compared with the 296,000 TEUs carried in the same month of 2011 – CSAV has struggled to break even, posting a net loss of $169 million in 2013, albeit reflecting a 46 per cent improvement on the $314 million deficit recorded in 2012.

And Hapag-Lloyd, which will announce its 2013 results soon, is also unlikely to have turned a profit last year, given that the line was carrying forward a cumulative $73.5 million loss into the final quarter. The past three months have even tested Maersk Line – container shipping’s bellwether company – which reported a $300 million fourth-quarter profit, compared with the $500 million surplus in the third quarter.

The problems for the German carrier seem to stem from the vessel cascading that has also impacted other carriers, such as OOCL. At the nine-month stage, all of Hapag’s service routes were showing year-on-year declines in average revenue per TEU, with the enforced redeployment of bigger ships onto hitherto robust trade lanes proving a drag on rates. Of its 5.3 million TEU annual carryings, Hapag-Lloyd’s service split is roughly 22 per cent each for its transatlantic, Asia-Europe, transpacific and Latin American trades, with Australasia accounting for the remaining 12 per cent of volumes.

In the case of CSAV’s 1.9 million-TEU-a-year business, 72 per cent relates to Latin America; thus, in the merged company, a 36 per cent dominance would be taken by this sector of the trade. CSAV shareholders were told at the presentation that Hapag-Lloyd would undertake an IPO a year to 18 months after the transaction is completed to raise $500 million. At the same meeting, shareholders also approved a $200 million capital injection for the Chilean line in order to complete the financing of seven 9,300 TEU ships under construction at Samsung Heavy Industries shipyard in Korea, and to fulfil some of the conditions for the closing of the merger with Hapag-Lloyd.

Interestingly, in some Hapag-Lloyd circles the merger is referred to as a “takeover”, although, assuming that the deal goes through, the common aim is to turn two loss-making carriers into one profitable line. “We want to reach Maersk’s level of profitability and efficiency,” said Mr Hasbun.

Re-printed courtesy of The Loadstar (