Cosco, China Shipping Merger Gets Beijing Approval

The proposed merger between China Ocean Shipping (Group) Company (China COSCO) and China Shipping Group is said to have been approved by China's state council.

The proposed merger between China Ocean Shipping (Group) Company (China COSCO) and China Shipping Group is said to have been approved by China's state council and an official announcement could come as early as Friday, media reports.

If finalized, the merger would result in the world's fourth largest container shipping line, but it's uncertain exactly what the deal will consist of: according to people "familiar with the situation" who talked to The Wall Street Journal, it could be limited to container shipping operations (in which case the value of the merger would be worth between $10 billion and $20 billion), or it could consist of all assets of the two firms (for a total of $80 billion).

Business divisions that could be included in the merger include commodities shipping, port and logistics operations and oil-tanker operations.

Xu Jianhua, a professor at Shanghai Maritime University, warns "The cost of merging the two companies will be far more than the benefit" and pointed to the 2009 government-managed merger of China National Foreign Trade Transportation Corp. and China Changjiang National Shipping Group Corp. as an example of a combined entity that has suffered declining profits despite the attempt  to cut costs in a radically oversupplied market.

An unnamed broker also told the Wall Street Journal that the COSCO/China Shipping Group merger might not go as planned due to minority shareholder objection: "Majority approval of these minority shareholders is required to pass any motions for connected transaction, which can be challenging since the company has little influence over these minority investors' decision."

These concerns follow Drewry releasing a note in September stating that the merger could create a domino effect and damage industry competition.