1997-2005 : The P&ONedlloyd Years
The PONL Years
Both P&O Containers and Nedlloyd Lines had enjoyed organic growth through the 1980s and 1990s, but their parent companies recognised that more radical action was required if they were to be truly competitive in the global market.
In 1996 a meeting was held between Lord Sterling, the chairman of P&O Steam Navigation Company, and Leo Berndsen his equivalent at Royal Nedlloyd. At this meeting they discussed the potential for a merger of their two container shipping operations:
On 9 September 1996 P&O Containers and Royal Nedlloyd announced the intention to form P&O Nedlloyd, a 50/50 joint venture with headquarters operations split between London (Beagle House) and Rotterdam (the Willemswerf):
P&O AND NEDLLOYD TO CREATE WORLD CONTAINER BUSINESS
The Boards of The Peninsular and Oriental Steam Navigation Company and Royal Nedlloyd N.V. today announced that they have signed a memorandum of understanding which will lead to the complete merger of their container businesses to form a major new European company.
The merged company will be called P&O Nedlloyd Container Line ("P&O Nedlloyd"). With a combined turnover of nearly $4 billion (£2.6 billion) and a net asset value of some $1.5 billion (£1 billion), the new company will be one of the largest in world container shipping.
Key elements of the memorandum of understanding:
shares in P&O Nedlloyd will be held 50% each by P&O and Nedlloyd, with Nedlloyd making a balancing payment of $175 million (£113 million) to P&O to equalise the shareholdings
P&O Nedlloyd will be a UK company based in London with fleet management in Rotterdam
the new company will have a board of eight members with four from each shareholder and chaired jointly by Lord Sterling and Leo Berndsen. The Chief Executive Officer will be Tim Harris.
P&O Nedlloyd will enter in to full operation as soon as possible but not later than 31 December 1996, following further due diligence, definitive agreements, regulatory approval and normal consultative procedures.
P&O Nedlloyd will have the world's biggest containership fleet in terms of standing slots and an annual throughput of close to 2.5m teus.
The new company will operate a fleet of 112 owned and chartered container ships and 540,000 teu owned and leased container boxes. It will have more direct ports of call and a wider range of trade routes than any other operator and will offer an unparalleled level of service to customers.
Putting together the container businesses of P&O and Nedlloyd will enable far greater container volumes to be handled at much lower cost. This rationalisation has formed a key part of discussions between the parent companies over the past six months.
From a total cost base of $3.9 billion (£2.5 billion), savings in excess of $200 million (£129 million) a year have already been identified. The savings will be achieved by reducing the combined workforce of approximately 9,400 to approximately 8,000, greater network efficiency, improved IT systems, more efficient box utilisation, lower inland costs and reduced terminal expenses. A substantial part of the savings is expected to be achieved before the end of 1997.
Commenting on the announcement, Lord Sterling, Executive Chairman of P&O, said: "For some time now I have been convinced that the best way forward in the container shipping industry is through consolidation and rationalisation internationally.
"The fact that Leo Berndsen shares this view is why we are able to make this announcement today. It marks the beginning of a great Anglo-Dutch venture. The new company will have an excellent management team and a strong balance sheet. P&O Nedlloyd will be a world force in container shipping."
Leo Berndsen, Chairman of the Executive Board of Royal Nedlloyd N.V., said: "I am very pleased with today's announcement. This new company will have the required scale to compete successfully throughout the world.
"P&O and Nedlloyd are two of the oldest and greatest names in shipping. We know each other well and have operated together very successfully in the past. Our container businesses complement each other well. P&O Nedlloyd will offer an even better product to our customers."
Notes to Editors
P&O will transfer in to P&O Nedlloyd all of the operating assets of its container shipping division, excluding Southampton Container Terminal, Tilbury Container Services and a number of smaller assets.These amounted to approximately $1.1 billion (£0.7 billion) at 31 December 1995. Nedlloyd will transfer in to the new company all its container shipping division assets, which amounted to approximately $0.8 billion (£0.5 billion) at 31 December 1995.
P&O and Nedlloyd will each leave net debt of $0.2 billion (£0.1 billion) in the new company. In addition there will be relevant finance leases amounting to $0.1 billion (£0.06 billion), giving P&O Nedlloyd total net borrowings of $0.5 billion (£0.3 billion). With net operating assets of $2 billion (£1.3 billion), the equity will therefore be $1.5 billion (£1.0 billion). Operating profits of P&O and Nedlloyd operations to be transferred into this venture in the past two years were:
$m £m $m £m
P&O 83 53 44 28
Nedlloyd 66 43 25 16
-- -- -- --
149 96 69 44
--- -- -- --
It is expected that the merger will give rise to annual cash savings and efficiency gains in excess of $200 million (£129 million) p.a., with restructuring costs estimated in the order of $100 million (£65 million).
The new company will be responsible for all capital expenditure post July 1996. It is expected that capital expenditure, net of depreciation, for the first three years 1997-99 will be of the order of $0.8 billion (£0.5 billion). It is intended that the new company will raise its own finance without recourse to its parents.
Although P&O shareholders' funds at completion will not be affected by the transaction, it will have the immediate effect of removing some $415 million (£268 million) of borrowings from the Group balance sheet and will remove the effect of the capital expenditure after July 1996. Further payments amounting to approximately $135 million (£87 million) will be received when inter-company debt and deferred payments have been settled.
"teu" is short for "twenty foot equivalent unit," which is the standard measure of volume in container shipping.
P&O CONTAINERS LTD
P&O Containers (POCL) is the sixth largest container line in the world in terms of standing slots on fully containerised ships. The company was formed out of the merger of the liner shipping interests of four major British lines: P&O, British and Commonwealth, Furness Withy and Ocean Transport. It became 100% owned by P&O in 1986.
POCL has strong historic market shares in each of the main trades which it serves, particularly Europe- Australia/New Zealand, Europe-Far East, Europe-South Africa and EuropeNorth America. The volume growth has come mainly from the East-West trades, but the North-South trades have produced a steady stream of cash and have higher barriers to entry than most liner trades.
The service that POCL offers to its customers is predominantly door-to-door rather than quay-to-quay. As an integral part of this, it has developed considerable intermodal expertise, which ensures a high level of customer service, and also provides a cost advantage.
It has an extensive network of owned agencies world-wide, and in the UK and Europe in particular this has enabled it to target higher yielding lower volume customers, in addition to the major international shippers.
POCL currently operates 52 ships with a capacity of 110,016 teus, and has a total container fleet capacity of 301,000 teus. Throughput in 1995 totalled 1,259,000 teus.
Nedlloyd Lines operates 33 fixed liner services to 192 ports of call in 81 countries. In addition to the ports of call of this direct network, numerous others are served through transhipment operations.
On each continent, Nedlloyd Lines has its own network of offices in addition to world-wide representation through agents. To be able to provide customers with effective and efficient solutions, Nedlloyd Lines deploys various different types of containers. These are specially geared to the different requirements of various kinds of cargo. The array of containers includes dry cargo containers, open top containers, reefer containers and flat rack containers.
For the world-wide transport of containers, Nedlloyd Lines deploys, among others, its own fleet of container vessels. This fleet consists of very advanced ships, including five innovative Ultimate Container Carriers (UCCs) designed by Nedlloyd Lines' own newbuilding department with a capacity of 3,568 teu each and two UCCs with a capacity of 4,112 teu each.
Nedlloyd Lines has 490 offices (including agencies), 60 owned and chartered containerships and 240,000 teu containers. The teu volume transported by Nedlloyd Lines in 1995 was 978,000.
A news conference at which further details will be given will be held at the offices of Hambros Bank, 41 Tower Hill, London EC3, at 1200hrs today (Monday, September 9).
When the two companies merged in January 1997 the combined fleet had a capacity of 224,000 teu. At its peak, the line was offering 70 trade routes calling at 250 ports and serving 120 countries. It was the largest partner in the Grand Alliance (with OOCL, Hapag Lloyd and NYK).
In 1998 P&O Nedlloyd took over Blue Star's container business and in 2000 the USA-based Farrell Lines.
P&O Nedlloyd's first chairman was P&O S.N.Co main-board director Tim Harris. In May 2000 he resigned and was replaced by Philip Green. It is widely believed that Royal Nedlloyd made an attempt to buy out P&O in 2001. That attempt failed, but three years later both parent companies came up with a plan which saw the container line floated on the Euronext stock-exchange:
P&O Nedlloyd to Become Independent and Listed
LONDON, February 2 /PRNewswire/ -- P&O and Royal Nedlloyd N.V. ("Nedlloyd") announce that agreement has been reached for Nedlloyd to acquire P&O's 50% interest in P&O Nedlloyd Container Line Limited ("PONL"). Nedlloyd will be renamed Royal P&O Nedlloyd N.V. ("Royal P&O Nedlloyd") upon completion of the transaction.
As consideration, P&O will receive approximately EUR215 million (GBP147 million) cash and a 25% interest in Royal P&O Nedlloyd post completion of the rights issue referred to below. The total consideration has a value of approximately EUR485 million (GBP331 million), based on Royal Nedlloyd's share price at closing of business on 30 January 2004. P&O has agreed to retain its 25% equity stake in Royal P&O Nedlloyd for a minimum of six months following the transaction.
Nedlloyd proposes to fund the cash consideration from an approximately EUR190 million rights issue with the balance being paid from existing cash resources. The rights issue is fully underwritten by a syndicate of banks subject to, amongst other conditions, satisfactory completion of due diligence.
The transaction is subject to approval by Nedlloyd's and P&O's shareholders, completion of the rights issue, regulatory approvals and admission of the rights issue shares and the shares that are to be issued to P&O for listing on Euronext Amsterdam.
It remains the intention of Nedlloyd to dispose of its 50% interest in Martinair as previously indicated to the market.
Highlights of the transaction
The status of PONL will effectively be transformed from a joint venture to an independent listing, with its operational headquarters in London.
PONL will benefit from increased strategic and financial flexibility to grow and develop its position as one of the leading global container shipping companies.
Royal P&O Nedlloyd will have a simplified corporate governance structure with a one tier board and one class of share capital.
The transaction meets the objectives of both P&O and Royal Nedlloyd N.V.
The management team - led by recently appointed CEO Philip Green - will be able to focus on positioning the company to capitalise on the current upswing in the container shipping industry cycle.
New corporate and new management structure
Royal P&O Nedlloyd will consolidate PONL as a 100% subsidiary. PONL will continue to operate using its existing trade name 'P&O Nedlloyd'. The transaction will have no impact on PONL's business, its employees or its day-to-day operations and services provided to its customers. Royal P&O Nedlloyd will have its headquarters in Rotterdam. The current two-tier corporate governance structure of Nedlloyd, consisting of both a Supervisory Board and an Executive Board, will be replaced by a one-tier board.
The board of Royal P&O Nedlloyd will consist of two executive directors and seven non-executive directors. The executive directors will comprise the Chief Executive Officer, Philip Green, and a Chief Financial Officer. The non-executive directors will be Andrew Land (Chairman), Neelie Kroes, Haddo Meijer, Robert Woods, Nick Luff (the latter two being nominated by P&O) and two independent appointees. Lord Sterling and Leo Berndsen, who had jointly established the PONL joint venture, have decided that this is the appropriate time to stand down.
If P&O sells part of its equity interest in Royal P&O Nedlloyd but remains above 15%, then one of the P&O nominated non-executive directors will step down from the Board. If P&O sells its equity interest in Royal P&O Nedlloyd below 15%, then the second P&O nominated director will step down from the Board.
Chairman/Chief Executive comments
Lord Sterling, Chairman of P&O said: "This transaction achieves P&O's key strategic objective and is good news for our stockholders. It is also good news for P&O Nedlloyd which will be able to use its new independence to reinforce its position as one of the world's leading container shipping companies."
Haddo Meijer, Chief Executive Officer of Nedlloyd said: "This is an exciting development for Nedlloyd and its shareholders as through this one-step transformation we will be able to meet the objective of effectively creating an independent listing for P&O Nedlloyd and we strongly recommend to our shareholders to support this transaction."
Andrew Land, Chairman designate of Royal P&O Nedlloyd said: "We are pleased that we and P&O have come to this agreement. We believe that the restructuring of P&O Nedlloyd's ownership is in the best interest of all stakeholders. This new structure will result in a strong independent container shipping company well-positioned for future growth."
Philip Green, Chief Executive Officer designate of Royal P&O Nedlloyd said: "I am very excited for everybody in P&O Nedlloyd and the opportunities it brings. The new Royal P&O Nedlloyd structure will be an ideal platform to build on the considerable achievements of the last few years and will provide flexibility and independence for management to focus on moving the company forward efficiently. This is supported by the favourable industry environment."
P&O Nedlloyd Trading & Outlook
The positive trend indicated in the Q3 2003 press release continued in Q4 2003. At 30 September 2003, the unaudited net assets of PONL were US$1.2 billion (EUR1.0 billion). PONL believes that the supply/demand balance in the industry is favourable and hence the outlook is positive.
The full year 2003 results for Nedlloyd, P&O and PONL are scheduled to be announced for 4 March 2004. Royal Nedlloyd and P&O will each convene an EGM of their respective shareholders to vote on the proposed transaction. These meetings are expected to be held in March/April. Completion of the transaction and the rights issue is expected in the course of April/May 2004.
This announcement is not for release, distribution or publication, whether directly or indirectly and whether in whole or in part, into or in the United States, Australia, Canada, Ireland, South Africa or Japan.
This announcement is not an offer of securities for sale or a solicitation of an offer to purchase securities in the United States. The rights (the "Rights") to purchase ordinary shares in Royal Nedlloyd N.V. (the "Shares") and the Shares may not be offered or sold in the United States unless registered under the Securities Act of 1933 or pursuant to an exemption from such registration. There will be no public offer of Rights or Shares in the United States.
This document does not constitute, or form part of, an offer, or solicitation of an offer, to purchase or subscribe for any rights, shares or other securities. The offer to acquire shares in Royal Nedlloyd N.V. pursuant to the proposed rights issue will be made solely on the basis of information that will be contained in the prospectus to be published in connection with such issue.
The date that Royal P&O Nedlloyd was first listed on the Euronext stock-exchange was 16 April 2004.
The P&O Nedlloyd fleet of container vessels went through significant changes after the merger. The ships that had started the dedicated container services in the late 1960s were phased out (OCL's first container ship the Encounter Bay was scrapped in China in 1999) and sales/lease back arrangements were made with ship management companies.
Vessels that were built for P&O Nedlloyd during this period were:
1998 - P&O Nedlloyd Auckland / Genoa / Jakarta - 2890 TEU
1998 - P&O Nedlloyd Kobe / Kowloon / Rotterdam / Southampton - 6690 TEU
1999 - P&O Nedlloyd Sydney / Marseille - 2890 TEU
1999 - P&O Nedlloyd Mercator / Tasman - 5468 TEU
2000 - P&O Nedlloyd Barentsz / Drake / Hudson - 5468 TEU
P&O Nedlloyd had also invested heavily in developing new IT systems (FOCUS) and remodelling its business processes. A major back-office facility was created in Pune, India which had over 2,000 staff. The performance improvement programme that was put in place to improve customer service, quality and profitability was titled "Bridging the gap".
The vision for P&O Nedlloyd was "be the recognized global leader in the point to point full container load shipping market". The values that supported this vision were:
Trust – absolute confidence in each other to work in the best interests of the company.
Commitment – a passion to deliver on promises
Team – the desire and ability to work as one
Fun – to make work more rewarding
Revenue for the year ending 2004 was US$6.71 billion with operating profit of US$401 million.
Royal P&O Nedlloyd was accepted into the AEX Index (the 25 most actively traded securities for Dutch companies on Euronext Amsterdam) in March 2005.
P&O Nedlloyd's existence as an independent company then came to an end...
Start with P&O Nedlloyd (induction course booklet which includes P&O and Nedlloyd company histories)
2004 P&O Nedlloyd Annual Report and Accounts (financial results, operational/commercial report, list of directors, fleet list, etc.)