CMA CGM plans $2B port terminal, ship sales to fund CEVA Logistics acquisition

Dive Brief:

CMA CGM plans to sell selected port terminals, ships and other assets to raise roughly $2 billion to finance its acquisition of CEVA Logistics, according to Reuters. The carrier completed the acquisition in April 2018, valuing CEVA at roughly $1.7 billion.
In August, the carrier stated its efforts to "turn the company around" would result in CEVA generating "positive free cash flow" by Q4 2019 and achieving $9 billion in revenue by 2021. However on Monday executives told Reuters an uncertain Chinese market and other economic factors have pushed those targets to 2023 or 2024.
To finance the acquisition, CMA CGM intends to sell stakes in 10 port assets to its joint venture with China Merchants Port Holdings, called Terminal Link, for $968 million, Reuters reported. The other portion is expected to come from the sale and lease-back of certain ships ($860 million), "a securitization program relating to customer receivables at CEVA," ($100 million) and the sale of a logistics platform in India ($93 million).

Dive Insight:

CMA CGM originally said the CEVA acquisition is a play for building out an end-to-end, maritime to land service offering for customers, creating economies of scale from combining the businesses.

However, the integration hasn't been completely seamless. In September, Moody's downgraded CMA CGM's credit rating, citing less cash on hand after the acquisition and negative pressure from other market factors including bunker fuel prices and IMO 2020 compliance.

While the financial performance of the assets being sold is not clear at this time, the sale could be CMA CGM's plan to improve the liquidity situation cited by Moody's and speed up its recovery in 2020 and beyond.

The carrier's cash flow has improved, and it saw year-over-year revenue and volume increases in Q2, by 4.6% and 6.3%, respectively. But CMA CGM says the acquisition of CEVA Logistics has cost the carrier tens of millions of dollars, according to its second-quarter filings.

"CEVA went through significant and structural changes in the first half of 2019 against a challenging macroeconomic backdrop," Nicolas Sartini, CEO of CEVA Logistics, said in a statement. "We are currently focusing on the turnaround of the Company through deep operational changes."

These changes include bringing CEVA into the black through "top line improvement with stronger business development structures and stronger contractual protections." Investing in automation, internal best practices sharing and process standardization are also elements of CMA CGM's integration strategy.