Cosco, China Shipping Merger Approved, Will Create Fourth Largest Box Carrier

China's state cabinet Friday approved the merger between China Ocean Shipping (Group) Co., (Cosco Group), and China Shipping (Group) Co., paving the way for a combined entity that will be the world's fourth-biggest container shipping line, the WSJ reports.

The news was posted on China's Assets Supervision and Administration Commission website, and while some analysts speculated that the merger would be limited to container shipping operations (worth between $10 billion and $20 billion), the deal has proven to be far more ambitious.

In an exchange filing, China Cosco Holdings Co. said it will consolidate its container-shipping operations by acquiring 33 China Shipping Container Lines Co. (CSCL) container-shipping related units and affiliate for 1.14 billion yuan ($177 million).

Cosco Group will also sell all its dry-bulk shipping businesses to its state parent for 6.77 billion yuan ($1.04 billion).

Additionally, Hong Kong-listed Cosco Pacific Ltd., will acquire the port operating business of China Shipping (Group) Co. for 7.63 billion yuan ($1.18 billion); it will also sell its Florens Container Holdings Ltd. container leasing business to a China Shipping Container Lines Co. unit for 7.78 billion yuan ($1.2 billion).

The complex merger will also see China Shipping Group's oil and bulk shipping unit, China Shipping Development Co., purchase China Cosco Group's oil shipping business.

These transactions will make the combined entity the fourth-biggest container shipping line after AP Moller Maersk Group, Mediterranean Shipping Co., and France's CMA CGM SA.

However, there's still debate over how smoothly the merger will occur and how effective it will be in bolstering China's competitiveness in a radically oversupplied market.
 
"This merger looks to be full-fledged across all units, but this adds to its complexity," said Basil Karatzas, a New York-based shipping adviser.

"Only time will tell if all these deals go through smoothly and bring down costs or [if] it's just a case of two state giants becoming an even bigger behemoth."

Parts of the deal, notably the merger of the box shipping businesses, are still subject to regulatory approvals from the U.S. and elsewhere in the world.

In September of this year, Drewry argued that the merger would change alliances that participate on the East-West trades and might damage industry competition.