Case Study Maersk Po Nedlloyd Finance Essay

A.P. Moller was born in a household that was associated to sea and transportation, the imperium as we know today started when he bought a 2nd manus vas in 1904. Today, Maersk Line is one of the taking line drive[ 1 ]transporting companies in the universe, a milepost achieved due to the vision of its laminitis back in 1928. Making a successful passage from hobo to liner merchandise their resiliency was put to prove after World War I. The company was confronting gigantic challenges to reorganize and get down its line drive concern. Get the better ofing all hurdlings the company non merely resumed its monthly service[ 2 ]but took an active portion in reconstructing Europe by viing in transatlantic paths. By 1950s the company expanded its line drive concern by embarking into Gulf, India, Africa, Hong Kong etc. and vass were deployed on Round-the-World-Line. ( Maersk, 2010 )

When the first international container cargo sailed in 1966, little did the industry knew the profound consequence it would hold but, feeling the approaching alterations the company created a section designated at looking into the hereafter of containerisation. In order to confront a new epoch in transporting Maersk ( 2010, p.1 ) undertook one of the largest undertakings in its history by puting 2 billion DKK[ 3 ]in ”vessels, terminuss, containers, selling and publicity of this new service. ” As a consequence Maersk Adrian with a capacity of 1400 twenty-foot containers ( TEU )[ 4 ]sailed from New Jersey on 5th September 1975, shortly to be followed by eight other vass. Since so the company has grown in stature and size, non merely they have a fleet of over 500 container vass but they have added the universe largest container vass to her fleet. ( Maersk, 2010 ) Apart from containers the company is engaged in different concern activities that includes oilers, offshore, terminal activities and oil and gas activities. Widening their concern portfolio the company owns Dansk supermarket, Odense steel shipyard, Maersk fluid engineering and svitzer etc. ( Maersk, 2010 ) associate some how

The group has a long history of Merger and acquisition ( M & A ; A ) as seen in Table ( A ) . In1999 the company acquired Safmarine Container Lines ( SCL ) and its related line drive activities for $ 240 million and in the same twelvemonth for a sum of $ 800 million the company acquired SeaLand and as per The World Bank ( 2003, p.33 ) they were able to cover ”virtually every corner of the Earth. ” In 2005 Mearsk acquired over all activities in Royal P & A ; O Nedlloyd N.V. , which was the consequence of a amalgamation between British P & A ; O Containers and Dutch Nedlloyd Lines in 1996. ( The World Bank, 2003 )

Beginning: Alacra, Inc. 2010

Table ( A )

So the inquiry is how can the company keep its laterality in the market? How can they retain their border over their rivals? The reply to these inquiries comes in the signifier of them recognizing their strengths, failings, chances and menaces normally known as SWOT. One of the many tools used in the concern universe for the above mentioned grounds.

LITRATURE REVIEW: Swot:

Harmonizing to Harris ( 2001, p.55 ) , ”for a concern to place realistic, appropriate and accomplishable strategic aims, it must hold a clear cognition and apprehension of the environment within which it is runing and its ain internal resource ” .

Menaces and chances are associated with the external environment within which the concern operates, whereas strengths and failings are related to the internal resources.

Beginning: Excelsia Consulting Resources, 2009

For Maersk or any other administration, in order to explicate a policy they need to understand their internal and external environment a position shared by Kushal ( 2010, p. 55 ) Hence, SWOT is an of import tool that enables the administration to,

Formulate a concern scheme.

By analyzing the external and internal factors the administration is able to see the complete image and its hereafter.

Equips the administration to undertake their competition.

Gives an chance to turn to the failings and capitalise on their strengths.

The undermentioned analysis is carried out by Datamonitor for Maersk published in July 2009 and follows the rules of SWOT analysis theory.

SWOT ANALYSIS FOR MAERSK

Strength:

With over 500 vass and over 2 million TEUs, Maersk is the universe ‘s largest container operator ( Maersk, 2010 ) & A ; ( Ali, 2010, p.1 ) . Apart from container service the group deals with logistics and terminal activities. When compared to its rivals the company has a clear advantage, doing it a dominant force in the market and enabling them to accomplish a competitory advantage and the power of effectual bargaining in the market. ( Datamonitor, 2009 )

This is apparent in face of Emma Maersk the largest and most environmentally friendly container ship in the universe. Depending on its lading she can take up to 15000 TEUs and in words of Dan Togo Jensen as reported by Ministry of Foreign Affairs of Denmark ( 2010, p.1 ) , ”a ship of that size gives considerable lower unit costs, and that provides a competitory advantage… ”

DIVERSIFIED BUSINESS OPERATIONS:

Lorange ( 2005, p.173 ) states that, ”the company has a… diversified base that allows it to pay a steady dividend watercourse. ” This is statement is further strengthened after analyzing the SWOT study by Datamonitor.

Since the group is able to gain its gross from other concern activities and its presence in more than 130 states ( Datamonitor, 2009 ) , allows them to make a wider scope of clients and they stand a better opportunity of lasting a downswing in any peculiar market. ( Datamonitor, 2009 )

Strong PERFORMANCE OF OIL AND GAS ACTIVITIES BUSINESS:

During 2004-08 this sector has shown a strong growing in gross and in FY 2008 oil and gas activities contributed 22.2 % towards the overall grosss and have helped Maersk in keeping a stable public presentation. ( Datamonitor, 2009 )

Failings:

The company has been fighting to keep its portion value in the market. Although in 2005 due to the acquisition of P & A ; O Nedlloyd the market portion saw a rise of 6.2 % but by March 2009 the value of the portion decreased. The autumn in portion monetary values is non the lone concern for the company, another affair of concern is that their rivals have experienced a important addition in their market portion. ( Datamonitor, 2009 )

UNFUNDED EMPLOYEE POST RETIREMENT BENEFITS:

For the FY 2008 the company reported an unfunded position of $ 0.5 billion towards their pension and post-retirement benefits for the employees. This failing would take to cut down hard currency for future programs aimed at overall growing of the company. ( Datamonitor, 2009 )

Opportunities:

With the aid of APM Terminals Maersk is able to tag its presence in 5 continents and is able to offers its services to 50 container terminuss. In 2008 APM Terminals expanded by get downing a new container terminus in Ukraine and they entered a joint venture with Pharung Shipyard in Vietnam. Furthermore, for the FY 2008 APM Terminals saw 24 % growing in grosss, this is an encouraging mark and it finally adds up to the entire gross for Maersk. ( Datamonitor, 2009 )

Expansion OF FLEET SIZE:

As seen in the tabular array above the company wants to increase its swift size in order to heighten its concern operations. ( Datamonitor, 2009 )

ACQUISITION OF BROSTROM:

With the acquisition of Brostrom the oiler division of Maersk would go the universe ‘s largest merchandise oiler operator. ( Datamonitor, 2009 )

( Since, the study Maersk has completed the acquisition. )

Menace:

In visible radiation of IMF World Economic Outlook Update January 2009 universe economic system is in convulsion and, this is bad intelligence for the group as Maersk generates most of its gross from Europe ( 48.1 % for the FY2008 ) , US and Japan. With the recession and fiscal unrest container market has seen a bead in transported volumes and like a Domino consequence it affects the cargo rates, therefore exercising force per unit area on the group. ( Datamonitor, 2009 )

Competitive Pressure:

The transportation industry is extremely competitory in nature and consists of many influential companies. These companies are able to supply a broad scope of services hence, impacting the cargo rates. Due to low merchandise distinction the companies attract the clients and increase the value of their market portion by faster bringing times, vass with big ladings transporting capacities and extended services. Furthermore, by indulging in terminal operations companies are increasing their grosss. Hence, these fortunes induce huge competitory force per unit area on Maersk. ( Datamonitor, 2009 )

Amalgamations AND ACQUISITIONS ( M & A ; A ) IN Transportation:

The pattern of acquisitions within the transportation industry has been on the rise since 1993, with the highest rate of acquisitions in 2006. ( Yim, 2009 ) Harmonizing to Yim ( 2009, p.53 ) , by 2007 the ”top 20 bearers in line drive transportation sector controlled more than 80 % of the universes container vessel capacity, ” due to M & A ; A. In position of Brooks ( 2000, p.14 ) , other grounds behind this tendency are demanding clients and the realisation that companies can non turn ”solely through organic agencies. ”

Acquisitions in line drive transportation industry 1993-2007

Beginning: Dynamar, B.V. ( 2007a, 33-35 ) & A ; Panayides andGong ( 2002 ) cited Yim ( 2009, p.55 )

As grounds suggests M & A ; A ‘s is being used as concern scheme in the industry. Hence, it is indispensable to understand the theory behind M & A ; A ‘s.

LITERATURE REVIEW: M & A ; A:

Harmonizing to Sherman, et Al. ( 2006, p.11 ) M & A ; A ”are frequently confused or even used interchangeably ” , hence it is critical to understand the difference between the two.

Reed, et Al ( 2007, p.3 ) provinces, ”A amalgamation occurs when one corporation is combined with and disappears into another corporation, ” a position shared by ( Sherman, 2006 ) ( Sherman, 2006 ) is of the sentiment that after the amalgamation the purchasing company may be a different administration but it will keep its individuality and harmonizing to Reed, et Al. ( 2007, p.4 ) a amalgamation ”may or may non follow an acquisition. ”

( Reed, et al. , 2007 ) & A ; ( Sherman, et al. , 2006 ) are both of the sentiment that through acquisition the purchaser, owns the stocks or assets of a corporation. During acquisition if the purchaser uses the option of stock purchase dealing so, the portions of the other company are ”often unbroken separate as a new subordinate or operating division. ” ( Sherman, et al. , 2006, p.11 ) But in an plus purchase dealing, the assets of the company being bought becomes ”additional assets of the purchaser, ” a position shared by ( Sherman, et al. , 2006, p.11 ) Harmonizing to Sherman, et Al. ( 2006, p.11 ) in making so the purchaser finally wants the value of the plus to increase in order to cover the cost, ”thereby heightening stockholder value… ”

REASONS FOR M & A ; A:

( Gaughan, 2007 ) and ( Cartwright, 2001 ) both are of the sentiment that there are several grounds for M & A ; A but, possibly the underlining ground are,

Growth

Synergistic benefits ( 2+2=5 consequence )

Diversification

Tax motivations

Good distribution system

To beef up Research and Development

Like everything where M & A ; A have its advantages, the scheme besides has its booby traps Business nexus ( 2010, p.1 ) high spots, ”Complexity, duplicate of people, procedures and engineering ” , as few dangers of M & A ; A. Lack of integrating, cultural differences etc. are all known dangers of M & A ; A. ( The list is by no average exhaustive as, there are/could be assorted grounds depending on the single instance. )

Equipped with cognition of M & A ; A, the undermentioned instance surveies provide a practical application of the theory,

CASE STUDY: MAERSK – SEA-LAND:

In 1987 Maersk started operations in transatlantic paths with good initial consequences but, when net incomes eluded the company showed involvement in purchasing Sea-Land from CSX. Though the dialogues failed, Maersk did pull off a vas sharing understanding ( VSA )[ 5 ]. Finally in 1995, after careful consideration the companies announced a planetary confederation. ( Brooks, 2000 ) Enjoying the benefits of this confederation both companies were able to bring forth net incomes, cut down cost, apologize plus usage and spread out their operations. In position of Brooks ( 2000, p.12 ) , this ”profitability enabled Maersk to turn through acquisition. ” On the other manus Sea-Land and CSX place had changed and they were confronting fiscal adversities. Unable to prolong their ailing fundss, on 22 July 1999 Maersk acquired the assets of Sea-Land ‘s the largest US container bearer. ( Chia, 2003 )

The consequence was a ”truly planetary bearer with about 11 % of the TEU capacity worldwide and over 19 % of the capacity on order. ” ( Boyes, 1999 ) & A ; ( Fremont, 2007 )

In position of Brooks ( 2000, p.13 ) , since geting Sea-Land, Maersk has ”worked towards the integrating of the two companies ” , in order to make a ”base from which it will vie. ”

CASE STUDY: MAERSK – P & A ; O NEDLLOYD ( PONL ) :

Maersk declared its purpose to purchase PONL ( universe ‘s four largest container company ) for a amount of 2.3 billion euors in May 2005 and by August the acquisition was completed with, Maersk geting 95.6 % of P & A ; O Nedlloyds portions. This gave birth to Maersk line, a company that harmonizing to Cudahy ( 2006, p.203 ) was ”twice every bit big as the 2nd largest container ship company ” in the universe and as per Ambrogi ( 2005, p.1 ) , it enabled them to spread out their ”fleet size and trading capacity. ” The move resulted in an nightlong rise of market portion from 12.5 % to 18 % . ( AXS-Alphaliner, 2007 ) . Sanyal ( 2005, p.1 ) , indicated that after the move Maersk will acquire a healthy portion of ”20 % of the planetary container market. ”

Decision:

In mid 1990s the transportation industry was traveling through a stage of M & A ; A ‘s that involved large names in the industry. ( Trace, 2002 ) The 1997 amalgamation of P & A ; O with Nedlloyd made them the figure one container operator and, gaining the importance of M & A ; A ‘s as a strategic concern tool Maersk made its move and acquired Sea-Land. This harmonizing to Brook ( 2000, p13 ) , was dubbed as ”a natural development of the close partnership. ” Furthermore, the writer is of the sentiment that this acquisition by Maersk was non entirely based on the concern environment in the 1990s but, sometimes confederations can take to acquisitions a position shared by ( Gregory, 2000 ) and since the two companies were an first-class lucifer possessing the assets, a pool of gifted directors, desire for high quality and a high degree of client service, the acquisition was successful. ( Brook, 2000 )

As for the Maersk-PONL instance, the market portions of Maersk were stagnating since 2000 but they went on to get PONL, who were confronting the same jobs. ( AXS-Alphaliner, 2007 ) As seen in the instance survey there was an addition in the value of portion but, in consecutive studies by AXS-Alphaliner-2006-07, the value of Maersk portion has been plumping[ 6 ]and they are unable to keep a steady growing. Falling market rates was non the purpose of this coup d’etat and unable to accomplish its marks the company got rid of the top three executives who were behind the acquisition of PONL ( a general position within the industry ) occupation loss. ( Leach, 2007 ) Maersk blames, trouble in integrating of information system with that of PONL, falling cargo rates and higher costs, competition and decelerate lading growing as factors doing the diminution in their portion value. ( Leach, 2007 )

The writer is of the sentiment that Maersk failed to admit the dangers of M & A ; A ‘s, as they failed to implement information system and did non appreciate the falling cargo rates during the clip of acquisition, a position shared by Jacques Saade president of CMA CGM and Tue Ostergaard. ( Leach, 2007 ) & A ; ( Wright, 2007 )

Whether one adopts Maersk point of position or takes the position of writer, the fact of the affair remains that Maersk line has posted a loss of $ 568 million in 2006, with a farther loss of $ 2.09 billion in 2009, ( Wright, 2010 ) and they have reduced their work force by 2000 to 3000 people, within its container concern that harmonizing to Leach ( 2008, p.18 ) ”is the biggest layoff in the company ‘s history. ”

From the analysis of the instance the writer is of the sentiment that, the company rushed into the acquisition of PONL and were unable to capitalise on economic systems of graduated table that they generated by larger vass and fleet. The failure to incorporate the two companies proved hard, as this is one of the booby traps of M & A ; As.

The two instance surveies reflects the importance of understanding the theory of M & A ; A, the scheme is to be used after careful consideration and weighing all options, if non so the consequences could be damaging for the administration. Furthermore, the writer takes a shared position of Bruner ( 2004, p.127 ) that SWOT analysis is an priceless tool for fixing negotiants… and integrating contrivers. ” The importance of SWOT as highlighted above is a possible beginning for Maersk to sail through disruptive times.