The news was warmly welcomed by analysts who have criticised P&O in the past for the slow progress of its rationalisation. P&O's shares surged by more than 8 per cent, from 517p to 559.5p, making it the best performer in the FT-SE 100 index.
Last night Tim Harris, who will be chief executive of the combined group, did not discount the prospect of further acquisitions as the world-wide container shipping industry restructures. "The combination of P&O and Nedlloyd creates a very strong company and we'll be in a strong position for new opportunities," he said.
Lord Sterling, P&O's chairman, said discussions about the merger had been going on for "six or seven months" which meant the venture, which will have sales of pounds 2.6bn and assets worth pounds 1bn,was likely to be in operation as early as next month and certainly by the end of the year. The merger will have to be cleared by the competition authorities in Brussels, although Lord Sterling did not foresee any problem.
The new company, P&O Nedlloyd, will be jointly owned by the two firms, though Nedlloyd will pay P&O pounds 113m to reflect the slightly lower value of its assets. P&O's other businesses, including the ferry operations, will remain separate, as will two of its cargo companies, Southampton Container Terminal and Tilbury Container Services.
Mr Harris said the 9,400-strong workforce of the combined company would be cut to 8,000 by the end of next year, contributing pounds 84m out of total annual cost savings of pounds 129m. The other savings would come from the joint operation of the container fleet itself.
P&O said 250 of the job cuts would be in the UK and 300 in the Netherlands. A spokesman declined to say how many of the job cuts would come from P&O, though it is thought that the British firm will close its Rotterdam office while Nedlloyd will shut its UK offices.
Combined with Nedlloyd's operations, the new company will be the largest in the world in terms of slot capacity.