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Meli Marine Case

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1. Overview
Meli Marine is a leading player in the container shipping industry on intra-Asia routes and has built a strong presence in the market and demonstrated very high operating margins and operating ROA from 2002 – 2007 compared to its main competitors. As Meli Marine’s CEO, David Tian seeks to steer the company towards expansion in 2008, with an option to acquire 16 vessels from Teeh-Sah Holdings. With these ships, he plans to expand to the trans-Pacific market. However, we believe this deal will not be in Meli Marine’s best interest at the moment, and the company will be better off without the acquisition.
2. Prelude to Acquisition Consideration
2.1 Market Attractiveness: Trans-Pacific route appears attractive as number of shipping lanes has grown by 48.9% between 2002 and 2007, and projected to grow by 42.9% from 2007 to 2012. Loyal customers have also approached David expressing interest in staying with Meli should they provide trans-Pacific operations. Therefore, this market can potentially be a big revenue driver if Meli’s assets are properly aligned to capitalize it.
2.2 Benefits of Diversification: Trans Pacific route, particularly outgoing flows to North America, could offer diversification of income source to Meli Marine in periods when Intra-Asia’s demand is weak. Moreover, in most cases of macroeconomic downturns, countries such as Asia in 1990s will resort to export-push policies to stimulate the economy and a race to affordable transport options; these could enlarge the volume of outgoing freight flows.
2.3 Tit-for-Tat Strategy against Competitors’ Cascading: On a macro level, an expansion move to Asia-NA route will be a strong hit on their competitors “on their profit pool”, and also serve as a possible strategic tool to thwart competitors’ threat of cascading.
2.4 Improve Churn Rate of “Feeder Only” and “Both Services” Customers: Offering

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