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German shipping giants explore merger

Shipping company Hapag-Lloyd is based in Hamburg, Germany. Container shipping groups have been struggling through the worst slump on record, caused by a weak global economy, oversupply of vessels and low freight rates.

Mary Altaffer/AP

Germany's largest container shipping companies, money-losing Hapag-Lloyd AG and Hamburg-Sued, are exploring a merger to create a global player better able to survive the sector's four-year slump.

A combined operator would rank as the world's fourth-largest after Maersk AS, Mediterranean Shipping Company SA and CMA CGM with annual revenue of more than €10-billion ($13-billion U.S.), a fleet of about 250 vessels and 11,500 staff.

"This is a business where size matters. Hamburg-Sued would, in the long-term, run into difficulties in keeping up with the big industry players," said Westend Brokers Research analyst Klaus Kraenzle.

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"It's a good step, potentially giving Germany one global shipping player."

The companies, which tried and failed to join forces 16 years ago, said in a joint statement on Tuesday they were investigating whether and under what conditions a merger would be of interest.

Container shipping groups have been struggling through the worst slump on record, caused by a weak global economy, oversupply of vessels and low freight rates.

German ship owners earlier this year even called for a state bailout. The country is home to the biggest fleet of container ships, accounting for 1,800 of the 5,000 vessels worldwide.

According to a source close to Hapag-Lloyd, the talks, which started this summer, should be brought to an end by the close of the first quarter of 2013.

Major Hapag-Lloyd shareholder Klaus-Michael Kuehne has long sought a combination of the group with a strong peer, arguing it made sense to combine Hapag's Asia focus with Hamburg-Sued's strength on South American routes.

"The larger shipper would be among the winners in the industry," Mr. Kuehne was quoted as saying in an advance copy of Wednesday's edition of Die Welt newspaper.

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Mr. Kuehne, who controls Swiss logistics group Kuehne & Nagel and owns around 28 per cent of Hapag-Lloyd, said it would be even better if the two merged with a third shipper from Asia.

Five years ago, an attempt was made to merge Neptune Orient Lines from Singapore with Hapag-Lloyd but the deal failed after wrangling over who would own the majority stake.

A merger with Hamburg-Sued would also allow Hapag-Lloyd to reduce its debt and give it breathing room until the sector resurges, the source said.

At the end of the third quarter, Hapag's net debt was €1.8-billion, up €542-million over the year-earlier figure. The group posted revenues of €5.2-billion and a net loss of €94-million in the first nine months of the year.

Hamburg-Sued, owned by the wealthy Oetker family – a household brand name associated with baking powder and frozen pizzas – is debt free, but is also losing money according to German media reports.

No banks have been mandated so far, though Hapag-Lloyd and Hamburg-Sued will pick accountants and lawyers shortly and start conducting due diligence, the source added.

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The city of Hamburg holds close to 37 per cent of Hapag-Lloyd, while German travel and tourism group TUI AG also holds a 22-per-cent stake.

Hamburg-Sued, which was founded in 1871, had sales of €4.75-billion in 2011. It declined to comment beyond the joint statement.

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