AP Moller Maersk, the world’s largest container shipping firm, surprised the market on Wednesday with the announcement of a DKK9.2bn ($1.77bn) share placing.
The move was unexpected since the Danish firm had pretty much ruled-out the prospect of any fund-raising on August 21, the day it also announced a loss – its first ever – of $540m.
As Lloyds List reported at the time, chief executive Nils Andersen told investors the shortfall had come despite revenues of $22.7bn, on a major loss to the container division of $961m. While the results were not pretty, investors warmed to the promise of aggressive restructuring measures to come: shares moved 7 per cent higher after Andersen said the group would trim between$1bn-$1.5bn from annual costs.
Analysts, meanwhile, viewed the family-controlled company’s funding position as strong enough to dodge any imminent need for a cash call.
As Lloyds List reported, Andersen himself said funding needs, if any, would more likely be met via the corporate bond market:
The group’s funding position was robust, he said. Nevertheless, Maersk may look for additional funding from the bond market. Mr Andersen noted that the general condition of the banking system had created some funding uncertainty. Maersk’s first major loan to come due is a $6.5bn facility in 2012.
So what might have changed to justify news of Wednesday’s placement?
A clue might be provided by an article published in the Journal of Commerce on August 24, in which Maersk’s Andersen openly stated the group was about to engage in a major pricing war:
“We won’t allow anyone to take our market share by systematically undercutting our prices … we are ready to … battle on prices,” said Nils Andersen, chief executive of Maersk’s Copenhagen-based parent A.P. Moller-Maersk.
The article continued:
Andersen’s warning, in an interview with Danish newspaper Dagbladet Borsen, comes just days after Maersk reported a second quarter loss of $402 million against a year-earlier profit of $198 million. First half losses climbed to $961 million. Second quarter freight rates were down 34 percent from a year ago, but Maersk forecast modest increases in the current quarter.
The carrier today unveiled a series of rate increases on its intra-Americas services from Sept. 1, claiming they were necessary “to continue providing a first class service … in an environment where the operating costs remain on the rise and current rates are below sustainable levels.”
Engaging in a pricing war can, of course, be an expensive affair. This is especially true if the strategy involves cutting supply directly out of the market when offered rates fail to meet your minimum criteria or buying out competitors.
Related links:
Maersk hit by ‘crisis of historic dimensions’ – FT
AP Moller-Maersk suffers $540m first half loss – Lloyds list