U.S. Questions Cosco’s Takeover of Cargo Terminal in Long Beach
Date: Monday, April 23, 2018
Source: Wall Street Journal
A U.S. national-security review has raised concerns about Chinese state-run conglomerate Cosco Shipping Holdings Co. taking control of a large container terminal in Long Beach, Calif., according to people familiar with the matter.
The terminal is part of Cosco’s proposed $6.3 billion purchase of an Asian shipping rival, which holds a long-term concession to operate the facility at the Port of Long Beach, one of the biggest gateways for imports into the U.S.
Cosco’s takeover of Orient Overseas International Ltd. 0316 0.91% , announced in July 2017, is undergoing a review by the Committee on Foreign Investment in the U.S., a secretive federal panel that vets foreign purchases of American companies on national-security grounds.
Cosco executives met with CFIUS officials this week and proposed to divest or carve out the Long Beach terminal to satisfy U.S. concerns about the deal, the people said.
“The Long Beach terminal is a prized asset, but it’s turning to be a roadblock to the completion of the deal, so it will likely be taken out of the equation,” one person said. “The plan is to sell it.”
It is unclear if that would satisfy concerns at CFIUS, which is chaired by the Treasury Department. A Treasury spokesman declined to comment.
The Long Beach terminal is one of the few in the U.S. that is almost fully automated and can handle some of the largest container vessels. The terminal is expanding to facilitate ships carrying more than 20,000 boxes each.
Cosco Vice Chairman Huang Xiaowen said on April 3 that the deal was on track to be completed by June, noting American approval was needed as Orient Overseas had assets in the U.S. “Up to now we are quite confident to push forward this acquisition.... It’s progressing normally,” he said at a news conference.
CFIUS has scuttled several recent transactions, including Broadcom Ltd.’s $117 billion takeover of chip rival Qualcomm Inc. and the sale of MoneyGram International Inc. to Chinese billionaire Jack Ma’s Ant Financial Services Group.
Its review of the shipping deal comes at a tense time between the U.S. and China, with leaders threatening to impose new tariffs and regulators on both sides of the Pacific weighing in on more matters. On Thursday, China’s antitrust regulator said it had concerns about Qualcomm Inc.’s $44 billion purchase of rival NXP Semiconductors .
Days earlier, the U.S. banned American companies from selling products to ZTE Corp., a Chinese maker of telecommunications equipment.
Cosco, which operates around 350 container ships, hasn’t hidden its ambition to become one of the world’s dominant carriers. A takeover of Orient Overseas would make Cosco the world’s third-biggest container operator in terms of capacity, behind Denmark’s Maersk Line and Switzerland-based Mediterranean Shipping Co.
It also would create the second-biggest mover of U.S. imports with an 11.8% market share, and the third largest in terms of exports with an 8.5% share, according to the Journal of Commerce.
Orient Overseas, which is listed in Hong Kong, is the world’s seventh biggest operator with around 100 ships in operation. Apart from the Long Beach terminal, it operates a container terminal in southern Taiwan.
Cosco has minor investments in other U.S. ports, including another pier at Long Beach as well as at the ports of Los Angeles and Seattle. These assets haven’t been part of the discussions, the people said.
The proposed Cosco deal would also need approval from China’s Ministry of Commerce, which is waiting for CFIUS’s ruling.
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