Shipping strains put Hapag on pricey M&A route

Zim Integrated Shipping Services

17/02/2026 12:23

The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

By Yawen Chen

LONDON, Feb 17 (Reuters Breakingviews) - Hapag-Lloyd’s HLAG.DE $4.2 billion swoop for ZIM Integrated Shipping Services ZIM.N looks like a costly attempt to keep up in the under-pressure shipping industry. The German buyer on Monday said it had agreed to pay $35 a share in cash, implying a premium of 58% to ZIM’s undisturbed price. That is punchy for a cyclical business, where returns are already sliding as pandemic-era freight rates ebb.

Hapag-Lloyd’s shares fell 8% on Monday and only partly recovered on Tuesday morning, signaling concern that CEO Rolf Habben Jansen is paying up at precisely the wrong point in the cycle. Container shipping faces a surge of new capacity, as vessels ordered during the Covid-era crunch finally hit the water. A gradual reopening of the Red Sea shipping route would put further downward pressure on freight rates.

True, Habben Jansen has reasons to cast an M&A line. Absorbing ZIM would boost Hapag-Lloyd’s capacity to over 3 million 20-foot equivalent units (TEU), which is the industry's preferred measure of scale, and refers to the size of a single standard shipping container. The deal therefore cements a top-five global position for Hapag-Lloyd, while strengthening key Asia-Pacific routes. Scale can bolster bargaining power with ports and customers. And ZIM’s modern fleet, which includes liquefied natural gas-powered ships, offers a shortcut to meeting environmental rules.

Scarcity also looms. Few sizeable yet still digestible independent carriers remain, according to AXSMarine analyst Jan Tiedemann. In that context, Habben Jansen may fear being left behind if it doesn't bulk up. It helps that he touts annual cost savings of $300 million to $500 million from the deal, including from optimising the network and gaining cheaper procurement.

Even then, the returns are disappointing. Including ZIM's net debt, the total outlay for Hapag-Lloyd is almost $6.9 billion, according to Breakingviews calculations. Analysts' forecasts for ZIM's operating profit are highly volatile, and imply a loss this year using Visible Alpha data, but the annual average over the next five years is $151 million.

Add $500 million of synergies, tax the total at 23%, and the implied return to Hapag-Lloyd is $501 million, or 7.3% of the overall purchase price. That's well below a probable industry weighted average cost of capital of close to 10%, based on Morningstar's estimate for the buyer. Granted, some quirks of German shipping taxes might mean an unusually low incremental rate for Hapag-Lloyd. But even if the tax rate was 10%, the return would still be only 8.5%.

That's not enough to compensate for all the risk, which includes possible integration problems. Political and labour opposition in Israel threatens to complicate matters, for example. ZIM’s heavy exposure to the spot market, where it inks shorter contracts reflecting current rates rather than longer-term fixed ones, could also become a liability as spot rates fall. In other words, it's easy to see why Hapag-Lloyd wants a deal, but this one looks too expensive.

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CONTEXT NEWS

Germany's Hapag-Lloyd said on February 16 that it would buy Israel's ZIM Integrated Shipping Services for $35 per share in cash, or $4.2 billion overall.

Shares in Hapag-Lloyd fell 8% on February 16 and were up 2.5% as of 1206 GMT on February 17.

Ocean freight rates have fallen well below pandemic levels https://www.reuters.com/graphics/BRV-BRV/zdpxjlglwpx/chart.png

ZIM deal cements Hapag-Lloyds' top five shipping industry spot https://www.reuters.com/graphics/BRV-BRV/dwvkqoyozvm/chart.png

(Editing by Liam Proud; Production by Shrabani Chakraborty)

((For previous columns by the author, Reuters customers can click on CHEN/yawen.chen@thomsonreuters.com))