MSC vs Klaus-Micheal Kuehne for HHLA?
German billionaire Klaus-Micheal Kuehne had expressed interest for port company, MSC offers bid of €16.75/share
Mediterranean Shipping Company (MSC) announced plans earlier this week to purchase all publicly traded A shares of Hamburger Hafen und Logistik (HHLA) at €16.75/share at a premium of 57 percent over the 30-day volume-weighted average price.
"The move closely follows German billionaire Klaus-Micheal Kuehne’s expression of interest in acquiring the German port company," says an update from Drewry. The present situation strongly suggests the likelihood of Kuehne making a counteroffer, the update added.
HHLA, which runs Germany’s biggest port Port of Hamburg, has two different classes of shares: i) Class A shares, which are publicly listed on the Frankfurt stock exchange and grant shareholders the right to participate in the financial results of its port logistics subgroup; and ii) Class S shares representing the company’s real estate subgroup, and unlike their class A counterparts, are not publicly traded on the stock exchange and are exclusively owned by the Free and Hanseatic City of Hamburg (FHH), which is also a majority owner (69 percent) of the company’s Class A shares. If the deal goes through, HHLA will become a joint venture between FHH (50.1 percent) and MSC (49.9 percent) and will be delisted from the market."
Ankush Kathuria, Lead Analyst, Drewry writes: "Port assets hold significant appeal for long-term investors due to their consistent cash flow patterns. Recently, ports have captured the interest of container shipping companies, which are actively exploring diversification opportunities along the entire shipping value chain, particularly in response to the challenges faced in their core shipping operations. Given the prevailing global macroeconomic challenges, persistent inflationary pressures and uncertain consumer confidence, the prospects for substantial improvement in the near future appear dim. Nevertheless, despite the downturn, shipping companies find themselves in possession of substantial cash reserves amassed during the 2020-21 super-cycle.
"The proposed deal has brought respite to HHLA, the volumes of which had largely stagnated in the past because of the tough competition from its regional peers and the recent lower cargo volumes in the Far East, particularly China. The company has been losing market share to its European peers of Rotterdam and Antwerp, which are primarily benefiting from the implicit volume support of liners because of their ownership at the terminal level. In such a scenario, MSC’s pledge to bring in additional yearly volumes of one million TEUs (by 2031) is a welcome move for HHLA. Furthermore, as part of the deal, MSC plans to move its German headquarters to Hamburg, creating fresh employment opportunities for the residents of Hamburg. This shift has been well-received by the local government, particularly amid increasingly sombre macroeconomic forecasts."
MSC has confirmed that it will present the offer document to the German Federal Financial Supervisory Authority (BaFin) for review in the coming four weeks, the update added. "After the announcement, HHLA’s stock price surged by 49 percent in just one day, reaching €17.20 (above the MSC’s bid of €16.75) but it is worth noting that the stock price is approximately 70 percent lower than its IPO listing price on November 2, 2007. At its current trading price, HHLA’s EV/EBITDA ratio is estimated at 5.3x, a substantial increase from 4.6x calculated just before the announcement. However, it still lags behind the average EV/EBITDA ratio of globally listed port players, which stands at 11.7x, despite HHLA’s extensive intermodal reach to Central and Eastern Europe."
The fact that the current price exceeds MSC's offer doesn't necessarily indicate MSC's intention to increase their bid, says Kathuria. "It's important to acknowledge that MSC is already paying a substantial premium to HHLA, and they also have established operations in Northern Europe including terminals in Antwerp and Rotterdam via Terminal Investment (TiL). Conversely, a higher price appears to reflect the market's expectation that HHLA might receive a competing offer. MSC may only consider revising its offer if a bidding war ensues."
Shipping giants and port moves
MSC had acquired Bollore Logistics Africa in a €5.7 billion deal in 2022, and rebranded the company as Africa Global Logistics. AGL has more than 250 logistics and shipping agencies, 22 port and rail concessions, 66 dry ports and two river terminals. "AGL will accelerate its investments in order to develop its capacities and facilitate the import and export of goods. AGL will thus respond to the challenges of intra-African trade, energy transition, the continent's demographic growth, the improvement of the living environment and the digitalisation of Africa."
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