Individual write-up topic:
If you were the CEO of NOL, would you buy APL?

Neptune Orient Lines (NOL) is a shipping company established in Singapore since 1967. Thanks to the Asia’s and Singapore’s fast economic growth and to be present in the busiest shipping routes in the world, the company has grown very quick. However since 1990s, NOL has started to suffer due to a slowdown of the regional economic growth, excess capacity in the shipping industry, many competitors on this market and declining shipping rates. In 1996, the company has seen his net profit decreasing by 54% but the results seem to be worse. In order to change this bad situation happening to NOL, the company decided in April 1997 to acquire APL Company, leader in the US shipping line. APL was the oldest and the second largest shipping line in the USA. The company had the largest freight rail services in North America. Despite a smaller fleet than NOL, APL had higher revenue, profits, shipping volumes and the company was good in the innovation part. The acquisition of APL by NOL seems to be profitable for the Singapore shipping Company. But was it the good decision taken by NOL Company to acquire APL Company?
If I was the CEO of Neptune Orient Lines Company, I would buy APL Company. Merger and Acquisition strategies had become more and more popular since 1990s. Indeed, using these strategies can help firms to face crisis. That is why NOL decided to use the acquisition strategy in order to overtake the problems that the company had. As the CEO of Neptune Orient Lines Company, I will also choose the acquisition strategy. Many advantages could be profitable from this strategy.

According to the case, the first thing that we can notice is that the turnover has increased. In 1996 the turnover was $ 1 928 410 and after the acquisition of APL, the turnover was in 1997 $ 2 672 466 and in 1998 $ 6 485 268 (e.g. Financial Data for NOL). We cannot deny the big difference between the turnover in 1996 and 1998, with a $ 4 556 858 difference. Despite an increasing turnover, NOL did not do any profit in 1997 (loss of $297 304) and 1998 (loss of $423 202) because of the high investment on the acquisition of APL Company. However, the acquisition of NOL would increase his fleet and then become one of the five largest carriers in the world. Then NOL can increase his market power. Thanks to this acquisition, NOL could benefit his big size on the market and have more attractive cost and get more competitive advantage. NOL could provide new services and customize their services. In a long term, NOL Company could benefit of the economy scale. NOL could also enjoy entering in new markets thanks to the APL’s port facilities and freight train network. So NOL can diversify his services (diversification) thanks to this opportunity to get APL’s train rail routes. Other advantages that the CEO Lua has mentioned were “The broadest array of routes with the highest frequency of sailings, the fastest transit times, and the most extensive intermodal services.” and thought that the company will get a cost of savings of at least US $130 million. Actually it could be an advantage to combine NOL and APL. Synergies can be extracted from this acquisition. Indeed, improvement in the organizational structure and management, sharing knowledge and combine strength are the resulting advantages when NOL will have the control on APL.

That is why if I was the CEO of NOL I would buy APL because the company have the opportunity to enjoy all of these advantages. However, I think that the price that Neptune Orient Lines Company has paid to acquire APL Company was too high. The initial offer was US $1060 Million but the company has finally paid US$ 1200 Million to acquire APL. Thus, NOL has borrowed US $850 million and because of that, the debt equity ratio would rise to 1.6 to 3.9. The industry of shipping was suffering from declining rates and overcapacity. In such circumstances, overpaid for APL might be a big mistake that the company had done. Indeed, choosing the acquisition strategy was good but before making such big decision, NOL should have thought about how the market is and how the company can bear this acquisition in a financial point of view.

In conclusion, I would acquire APL because the acquisition can help the company to overtake the problems faced at that time. Thanks to the acquisition of APL by NOL, the company could then enjoy many advantages (opportunity to enter new markets, increased market power, increased speed to the market, learning new capabilities, provide new services, diversification, saving costs and a more competitive advantage). However, the price for acquiring APL was too high, and the fact that NOL has overpaid for this acquisition might be big risk. But I will see in a long term period and in my opinion taking this high risk will bring higher benefits for Neptune Orient Lines Company.