By Theo van de Kletersteeg

On December 18, the two companies issued a joint press release which stated “The Executive Boards of Hapag-Lloyd AG and of Hamburg Südamerikanische Dampfschifffahrts-Gesellschaft KG (Hamburg Süd), in agreement with their shareholders, are investigating if, and under what conditions, a merger of both companies would be of interest.”

Hapag-Lloyd has a rich history dating back to 1847 when one of its two predecessor companies was founded. The present company was formed in 1970 when Hapag and Norddeutscher Lloyd were merged. In 1998, TUI AG of Hanover, Germany, a hospitality and tourism conglomerate, acquired Hapag-Lloyd, and organized it as a subsidiary of TUI in 2002. In the course of its integration into TUI, almost all of Hapag-Lloyd’s tourism-related activities were transferred to TUI.

As at year-end of 2011, Hapag-Lloyd operated 149 container vessels with a total capacity of 679,000 TEUs. It carried 5.2 million containers in 2011, and produced revenues of EUR 6.1 billion.

By 2009, having determined that it wished to divest of non-core activities to focus on the travel industry, TUI sold Hapag Lloyd to “Albert Ballin” Holding GmbH & Co KG at an enterprise value of EUR 4.5 billion. However, TUI retained a 43.3 per cent ownership position in the consortium. The “Albert Ballin” consortium consists of the City state of Hamburg, shipping magnate Klaus Michael Kuehne, Signal Iduna, Hanse-Merkur, M.M. Warburg & Co and HSH Nordbank AG. It currently holds a 78-per-cent ownership position in Hapag-Lloyd, while the remaining 22 per cent continues to be owned by TUI.

Hamburg Süd was established in 1871 to provide Germany to South America shipping services. The Dr. August Oetker Company acquired Hamburg Süd in 1955, and began the company’s rapid expansion into liner and passenger services. Over the years, Hamburg Süd acquired numerous shipping companies and at the end of 2011, Hamburg Süd operated 107 container ships with a total capacity of 395,000 TEUs, as well as 53 tramp ships. In 2011, Hamburg Süd carried 3.1 million TEUs, and produced total revenues of EUR 4.2 billion.

Dr. August Oetker KG is a privately-owned global food processing company, headquartered in Germany, which also owns a bank, an insurance company, a hotel chain, as well as Hamburg Süd and other business units.

If a merger between Hapag-Lloyd and Hamburg Süd were to take place, the merged entity would be the 4th largest global container line, after Maersk, MSC, and CMA CGM, and would solidify Germany’s position in global shipping. With Hapag-Lloyd’s trade lanes concentrated on East-West trade, and with Hamburg Süd’s trade lanes dominated by North-South traffic, a combined carrier would truly be global in scope. Also, a merged entity would be well-financed and well positioned to take on the challenges of intensified competition. However, mergers have a history of not living up to expectations, for many reasons. Practically, a merger between Hapag-Lloyd and Hamburg Süd would have to be considered a merger of equals, which poses the obvious question of ownership and control. Secondly, with two large rivals headquartered in the same city merging, would the cultures of the two organizations allow for a peaceful and productive integration, or would strife result?

One thing that is certain is that TUI is eager to exit from its ownership position in Hapag-Lloyd, so it can concentrate on its travel business. This exit could take place as part of a merger (between Hapag-Lloyd and Hamburg Süd or another carrier, or another participant in the transportation industry), or by offering its minority stake to the public, or by selling it to a third party. It will be interesting to see how this situation will evolve.