Jeremy Warner's Outlook: P&O Nedlloyd falls victim to container shipping's Mr Big as consolidation takes hold

A defining moment for Germany
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The Independent Online

Maersk McKinney Moeller is 91 years old and according to most accounts still going strong. He has to be, for he still controls and actively manages one of Europe's biggest business dynasties, the Copenhagen-based AP Moeller Maersk.

Maersk McKinney Moeller is 91 years old and according to most accounts still going strong. He has to be, for he still controls and actively manages one of Europe's biggest business dynasties, the Copenhagen-based AP Moeller Maersk.

Besides being far and away the world's biggest container shipping company, Maersk owns an airline and a supermarket chain. It also largely builds the giant container ships it operates in its own, Danish yards. This is the sort of vertically integrated business model that most management textbooks tell you is inevitably doomed to failure.

There is, on the other hand, not much sign of failure at Maersk, which yesterday confirmed it was in talks to buy the British-based but Dutch-listed P&O Nedlloyd. To the contrary, Maersk is so successful that it can afford the $3bn to secure P&O out of petty cash. Just the thought of it will make Lord Sterling, the soon to retire chairman of the separately quoted P&O, groan with despair and envy.

P&O still retains a 25 per cent shareholding in P&O Nedlloyd, the result of folding its container shipping operation into Nedlloyd some years ago, so it should do very nicely out of any offer from Maersk. In the year since the company was floated, P&O Nedlloyd shares have doubled on the back of the Chinese fed boom in container shipping rates.

Yet just think what Lord Sterling might have achieved, and how much value he could have created, had the City backed him in his ambition to expand rather than contract the size of the P&O fleet. Instead, investors made him break it up. The container operation was merged into Nedlloyd, and after being demerged, the P&O Princess cruising business was sold to Carnival.

Even the original property portfolio has now largely gone, leaving P&O a shrunken shadow of its former self, slimmed down to just container terminals and the remnants of the Townsend Thoresen cross-Channel ferry operation. Why, it's not even big enough to command membership of the FTSE 100 these days, even after yesterday's 4 per cent rise in the share price.

To this day, Lord Sterling curses the shareholders who made him do it. Instead it is left to the nonagenarian Mr Moeller to the ride the wave of the greatest shipping boom of recorded history. To him, it scarcely matters whether it is altogether wise to be buying P&O Nedlloyd at what looks all too likely to the top of the market. Mr Moeller still majority owns his $40bn shipping empire. Given his age and wealth, he can afford to take an entirely philosophical view of the requirements of short-term shareholder value.

Yet his timing is curious, none the less. Mr Moeller has seen more shipping cycles than most of us have experienced the open seas, and he surely cannot believe the present upswing is for ever? Already world trade, the fuel of the container shipping business, is coming off the boil. Any hiccup in Far Eastern exports would send rates tumbling.

What's more, the cycle may be reaching its peak just as a whole fleet load of new capacity comes steaming out of the shipyards, much of it built by none other than Maersk itself. Only last weekend, Maersk launched what is widely believed to be the biggest container ship ever built, the Gudrun Maersk. Such is the secrecy that surrounds this company that nobody knows quite how big it is for sure. In any case, after three years in which demand has far outstripped capacity, we may be about to enter the reverse phase.

Maersk's move is therefore as much defensive as expansionary. When things get tough, consolidation may make sense, even when you have to pay through the nose to achieve it. Perhaps oddly, container shipping businesses still command relatively poor valuations, so even at today's inflated share price, the deal may make sense for Maersk as a pure asset play.

The chief executive of P&O Nedlloyd, Philip Green (no, not that Philip Green), has long believed this relatively fragmented industry ripe for further consolidation. Only the family controlled nature of many of its companies, in combination with the alliances that allow them to share each other's capacity, has prevented more of it from happening already.

Yet I'm not sure Mr Green had Maersk, the great granddaddy of the industry with about 12 per cent of the world container market, in mind when he made his remarks. For choice, he'd have preferred to be the consolidator, rather than the consolidated. However, like Lord Sterling he's ruled by the god of short term shareholder value, and he would not be forgiven for turning down $3bn in cash. Mr Moeller is plainly a resilient chap, but he surely won't be around for long enough to find out whether he's pulled off another blinder of a deal, or whether this is not more a case of there being no fool like an old one.

A defining moment for Germany

For Germany, the ousting of Rolf Breuer and Werner Seifert from the board of Deutsche Börse by Anglo- American hedge funds is proving a rude awakening. Two frighteningly new realities have dawned. The first is the realisation that German companies are owned not by the closely knit group of bankers that have traditionally called the shots, but by their shareholders.

Perhaps worse is the realisation that many of these shareholders are foreign, and that some of them are short term speculators. As the Deutsche oustings graphically illustrate, increasingly they are flexing their muscles. Shock horror, they demand that companies be run not in the perceived interests of management, the workforce, local social mores or the fatherland, but their own. As Mr Breuer put it yesterday, nobody is safe. Whether he is also right to think what they are doing rips through the heart of the German economy is more debatable.

Foreign speculative and money making interest in Germany has been likened by one leading politician to a biblical plague of locusts stripping the corporate landscape bare of jobs and assets. Yet in many respects Germany only has itself to blame for this terrible predicament.

The economy is tanking, there is record unemployment among the young, labour markets remain as inflexible as ever, the political system is bankrupt and what remains of the reform agenda is being buried beneath a protectionist and inward looking backlash. Paradoxically, this makes Germany a happy hunting ground for the hungry swarm of Anglo-American private equity and hedge fund locusts. Germany is still hugely asset rich, yet the economy is considered so fat and slothful, that there is a sizeable German discount. This is just the sort of orchard, filled as it is with low hanging fruit, the locusts like to feed on.

Refinanced, stripped down and run as they can be, these assets become hugely lucrative and the prices paid for them look absurdly cheap. Many Germans, understandably, don't like it. To them, this is little short of plunder, and by costing jobs it seems only to make bad levels of unemployment even worse. Playing to his domestic audience, Mr Breuer accuses the hedge funds of destabilising the economy, yet with his Deutsche Bank hat on, he's practicing much the same thing. Deutsche is axing 60,000 jobs in Germany, prompting the ruling SDP to place Mr Breuer's bank firmly in the ranks of the top 12 "locusts".

After his experience at Deutsche Börse, Mr Breuer seems to face both ways on these issues. Yet there is nothing ambiguous about the position of Josef Ackermann, his chief executive at Deutsche Bank. A convinced free marketeer, he's openly threatened to remove Deutsche Bank's domicile from Germany so appalling is he by his country's inability to move forward. After becoming involved in the first hostile foreign bid on German soil - Vodafone's bid for Mannesmann - he was put on trial on trumped up charges in apparent punishment for his disloyalty.

To the extent that they attempt to justify their antics at all, the hedge funds and private equity players say they are only acting where the politicians have failed in bringing Germany into the 21st century. Like Mr Ackermann, they are all too likely to be punished for their trouble.

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