Tung Chee-hwa secures a ‘Godfather’ deal from Beijing
While Tung was serving as the first chief executive of Hong Kong SAR, the value of his family asset OOIL grew by 10 times
How can you ask your trusted lieutenant to give up his family business? Easy. Just do it the Godfather way – make him an offer he can’t refuse.
That appears to be the case with the HK$49.2 billion (US$6.3 billion) blockbuster merger between Chinese state-owned Cosco Shipping and Orient Overseas (International) Ltd (OOIL), owned by the family of former Hong Kong chief executive Tung Chee-hwa.
The Tung family, who own 69% of OOIL, will cash out HK$34 billion in the consolidation stage. The 70-year-old company was founded by the late Tung Chao Yung, Tung Chee-hwa’s father, who had used the plum blossom – the national flower of the Republic of China – as his company’s logo since 1947.
Despite the shipping industry’s poor outlook, which saw OOIL sink to an annualized loss of US$219 million last year, the lucky Tung family was able to secure an offer of HK$78.67 per share from Cosco. That was an amazing rise in fortunes since OOIL was trading at just HK$5.5 on July 1, 1997, when Tung Chee-hwa became the first chief executive of Hong Kong Special Administrative Region and passed the company management to his younger brother Tung Chee-chen, now 75.
OOIL without Tung Chee-hwa
When Tung stepped down as Hong Kong chief executive in March 2015, he told media that he would not return to work in OOIL but would continue to hold the family asset through a trust.
During his service as the SAR’s chief executive between July 1997 and March 2005, OOIL’s market cap grew by about 10 times to around HK$21.5 billion, or HK$33.6 per share. Since then the share price recorded a high of HK$96.55 on July 26, 2007, and decreased to HK$10.5 on October 28, 2008.
The shares closed at HK$60 last Friday.
OOIL was trading at only HK$32.15 early this year but was traded up on expectation of an industry consolidation after Korean company Hanjin Shipping filed for bankruptcy last summer. It was said the US$1 trillion global container industry was about to enter its worst down cycle in 30 years.
It was recognized then that the merger of Cosco (ranked fourth) and OOIL (seventh) would create the world’s third-largest shipping line behind Maersk and Mediterranean Shipping Company, with an annual capacity of 2.4 million TEUs (twenty-foot equivalent units).
The easiest way for a mainland Chinese shipper to expand internationally is to acquire a friendly party like OOIL, whose controlling family has close ties with Beijing. Tung was known to be a middleman in relations between Beijing and Washington as he acted as a spokesman for Xi Jinping on a US tour in 2013 before Xi was made president of China.
Tung the ‘kingmaker’
Now 80, Tung has remained active in Hong Kong politics, having offered blessings to current Chief Executive Carrie Lam and her predecessor Leung Chun-ying. He was dubbed a “kingmaker” in the Hong Kong political community.
In a business that requires heavy capital investment and undergoes unusually long economic cycles, OOIL was on the verge of bankruptcy when Tung first took over, but he led the group out of that plight and played a leading role in the market.
And now, Tung will once again leave his name in the history books by selling his family business at a good price – and complete his mission by letting the mainland shipper take OOIL into the top leagues.
It is very likely that the company’s plum-blossom logo will no longer exist after the transaction. As for Tung himself, it is reasonable to speculate that he will step down as vice-chairman of the Chinese People’s Political Consultative Conference next March and pass his remaining political power to Leung Chun-ying, who became CPPCC vice-chairman in March this year.