A buyout offer from a deep-pocketed peer was the prime mover of Zim Integrated Shipping Services (ZIM 3.03%) last month. The company's shares raced nearly 31% higher over the month as investors, understandably, welcomed the deal, and analysts chimed in with optimistic updates after the announcement.
4.2 billion reasons to like Zim
In mid-February, both Zim and Hapag-Lloyd announced, in separate press releases, that Hapag-Lloyd would acquire the former for $35 per share in an all-cash deal valued at approximately $4.2 billion. The two sides hastened to point out that the price represented a 58% premium to Zim's closing level on the trading day before the deal was made public.
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Not surprisingly, the rather generous transaction was unanimously approved by Zim's board of directors. It is still subject to shareholder ratification, although we can imagine there won't be much opposition given the price premium. The acquisition is also pending approval from the relevant regulatory bodies, plus the State of Israel, which holds "special state rights" within Zim. Both companies expect the deal to close by the end of this year.
Absorbing Zim will bolster Hapag-Lloyd's status as the No. 5 ocean container shipping company on this planet, the companies said.
Post-announcement, several analysts quickly published bullish new takes on Zim. Two of them, Citigroup's Chloe Fu and Fearnley's Fredrik Dybwad, went as far as to upgrade their recommendations and reset their price targets to better align with the buyout price. Fu moved her rating to neutral from buy, with a price target of $31.80 per share. Dybwab shifted from hold to buy, with his new price level matching Hapag-Lloyd's offer at $35.
NYSE: ZIM
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Pockets of displeasure
Both of those targets sit well above where Zim stock settled at the end of February. The ocean transportation company closed the month at $28.83 per share, a considerable distance below Hapag-Lloyd's offered price.
There are two core reasons for this. First, while investors might have been happy about the buyout news, Zim's employees clearly weren't. Understandably concerned about the future of their jobs, they staged a strike that lasted several days. The union representing these workers and Zim management struck a deal; however, the work stoppage was indicative of broader unease among the company's rank and file.
Big reason No. 2 is those "special state rights," held by Israel's government, tantamount to a "golden share" in Zim that theoretically allows the authorities to quash any buyout or merger.
This was addressed in a carve-out in the deal, in which an entity called New Zim is to be owned by Israeli private equity firm FIMI Opportunity Funds. FIMI will keep the company's brand and 16 of its ships that work routes to and from that country (out of the total of 145 that Zim currently operates).
This won't be a deal that, forgive the metaphor, sails through the regulatory and approval processes. It's too lucrative for current Zim shareholders not to ultimately go through, and that carve-out seems like a satisfying compromise over the golden share. Even though much of the post-buyout pop is a story that's over, I feel the stock still has some upside left.
