Hapag-Lloyd and UASC agree merger terms

Combined fleet will include UASC's six 18,000 TEU containerships

JULY 18, 2016 — Hapag-Lloyd AG and United Arab Shipping Company S.A.G. (UASC) have now signed a Business Combination Agreement (BCA) to merge both companies, subject to regulatory and contractual approvals.

“This strategic merger makes a lot of sense for both carriers – as we are able to combine UASC’s emerging global presence and young and highly efficient fleet with Hapag-Lloyd’s broad, diversified market coverage and strong customer base. Furthermore it will give the new Hapag-Lloyd access to Ultra Large Container Vessels”, said Rolf Habben Jansen, CEO of Hapag-Lloyd. “After the successful integration of CSAV which was concluded mid of 2015 this transaction with UASC is another historic milestone for Hapag-Lloyd. The merger reinforces our position as a top 5 and one of the largest truly global carriers in liner shipping.”

The fleet of the combined company will consist of 237 ships – including UASC’s six recently received 18,800 TEU ships, known for their superior eco-efficiency credentials, as well as eleven newly built 15,000 TEU containerships, the last of which will be delivered soon. With an average age of 6.6 years and average size of 6,600 TEU the combined company will have one of the most modern and efficient vessel fleets in the industry.

The company will be a key player in the new “THE Alliance” – consisting of Hanjin, Hapag-Lloyd, K-Line, Mitsui O.S.K Lines, Nippon Yusen Kaisha and Yang Ming. THE Alliance is scheduled to begin operation in April 2017 and will cover all East-West trade lanes including Asia-Middle East/Arabian Gulf and Red Sea.

Besides the BCA, the parties have also signed a separate Shareholders Support Agreement (SSA) in which some of the controlling shareholders of either side have committed, to backstop a cash capital increase in the amount of $400 million planned by way of a rights issue within six months after the closing of the transaction.

The combined company will remain a registered and stock listed company in Germany with its head office in Hamburg.CSAV, HGV (City of Hamburg) and Kühne Maritime will remain controlling shareholders of Hapag-Lloyd. The majority shareholders of UASC, Qatar Holding LLC (QH) and The Public Investment Fund of the Kingdom of Saudi Arabia (PIF), will become new key shareholders of Hapag-Lloyd holding 14 percent (QH) and 10 percent (PIF) respectively.

PROFIT WARNING

The agreed comes as the container shipping industry continues to face tough times and, in parallel with announcing the merger, Hapag-Lloyd issued the following profit warning:

Hapag-Lloyd AG adjusts its outlook for the financial year 2016 as the development of the freight rates is significantly weaker than expected. The revised expectation of the Executive Board is a clearly decreasing EBITDA and a clearly decreasing EBIT compared with previous year.

In the second quarter of 2016 the average freight rate of Hapag-Lloyd AG decreased to 1,019 USD/TEU, i.e. 245 USD/TEU below prior year period (1,264USD/TEU in Q2 2015). The recovery at the beginning of July does not seem sufficient and sustainable enough. Additionally bunker prices have increased throughout the second quarter of 2016.

After the potential Business Combination with United Arab Shipping Company S.A.G. (UASC)transaction related one-off costs will also impact the results in 2016.