Amid fierce competition in the global container shipping market, Beijing-based Cosco Shipping is strengthening its position with an all cash offer to acquire Hong Kong-based Orient Overseas International Limited (OOIL).

The controlling shareholders (the Tung family, led by former Hong Kong chief executive Tung Chee-hwa) who currently hold 68.7% of OOIL, have irrevocably undertaken to accept the offer.

After the deal closes, Cosco Shipping Lines and OOIL will continue to operate under their respective brands, providing container transport and logistics services. Both companies are already members of the Ocean Alliance and will continue to work together under this framework.

OOIL is the seventh-largest container shipping company in the world. The combined OOIL and Cosco Shipping Lines, a subsidiary of Cosco Shipping, will operate more than 400 vessels over an expanded network, with capacity exceeding 2.9 million TEUs (twenty-foot equivalent units) including ships on order.

Cosco Shipping is listed on the Shanghai Stock Exchange, while OOIL is listed on the Hong Kong Stock Exchange. The all-cash offer has been made at a price of HK$78.67, valuing the company at US$6.3 billion. On completion, assuming all OOIL shareholders tender their shares, Cosco Shipping Holdings will hold 90.1% of OOIL, while Shanghai International Port Group will hold a 9.9% stake.

The transaction is the latest in a series of M&A deals in the global maritime industry, where container lines have been struggling with overcapacity and low freight rates. Over-ordering is partly to blame, with Chinese and South Korean yards anxious to keep busy with low-priced contracts for new buildings. Ever larger container vessels are also being built, though these are also helping bring economies of scale to the industry.

In May of this year, OOIL took delivery of the world's largest container ship, the “OOCL Hong Kong”, which has a capacity of 21,413 TEUs.

A strong presence in global container shipping is a key element of China's Belt & Road ambitions. The two companies said in a statement that the combination of Cosco Shipping Holdings and OOIL can deliver a stronger competitive advantage. The other Ocean Alliance members are French container shipping giant CMA CGM, based in Marseilles, and Evergreen Line of Taiwan.

Rival grouping, THE Alliance, consists of NYK Line, MOL, “K” Line, Hapag-Lloyd, and Yang Ming Line of Taiwan. The capacity of United Arab Shipping Company is also included in THE Alliance because of its expected merger with Hapag-Lloyd.

The other major alliance is 2M, featuring Copenhagen-based Maersk Line and Mediterranean Shipping Company, which has its headquarters in Geneva.