Happy Birthday, Vopak: Worlds Largest Chem Shipping Company Born

After years of courting, Pakhoed NV and Van Ommeren formally became the world's largest chemical shipping, tank storage and logistics group last Thursday with the launch of Vopak shares on the Amsterdam bourse. The shares started trading at $24.84 (26.05 euros) and closed at a session high of 27 euros, giving the new company a market capitalization of $1.46 billion (1.396 billion euros). "We don't expect any spectacular movements in the share price" in the short term, said SNS Securities analyst Okko de Jager, who has a "buy" recommendation on the shares. The on-again, off-again merger of the former rivals has created a giant with deep pockets - estimated at one billion euros - and market commanding positions in Europe and the U.S. The companies announced the merger in July, a year after canceling a linkup when Pakhoed refused to part with terminals in the Benelux region as demanded by the European Commission. "They will be a market leader in two separate areas, chemical shipping and tank storage...especially in tank storage they will create many synergies which will allow for margin improvement," said Geert-Jan Hoppers, analyst with Effectenbank Stroeve. But generally soft sector performances in both shipping and chemicals markets is initially expected to take its toll on the new company's bottom line. Vopak, which has a pro forma turnover of about 3.3 billion euros, has already warned that its 1999 net profit from ordinary operations will fall 5-10 percent from the pro forma 1998 level of 176 million euros. Company watchers expect the shares to find solid support, although the upside potential may be limited over the coming months as the company needs to divest some non-core activities and prove that it can successfully integrate its operations. With more than 90 terminals, Vopak will hold about 30 percent of the world market in independent tank storage in addition to its market leading position in U.S. chemicals distribution and number two position in the European market, with an estimated overall worldwide market share of about five percent. The new company will be better positioned to take advantage of oil companies' desire to hive off their petrochemical logistics business. Vopak has said it expects annual turnover growth in logistics turnover of 5-10 percent. "The outsourcing trend (by oil companies) will continue. The need to have access to the full world market is essential. That's not possible for a lot of other players," said Patrick Schotanus, analyst with F. van Lanschot Bankiers. And with size one of the main advantages for Vopak, Pakhoed has said Vopak will be on the acquisition trail. Pakhoed's sale of its three Benelux terminals, required by the European Commission for approval of the merger, the sale of its share in Rotterdam's Europe Combine Terminals along with the funds raised through a preference share offering will be combined with Van Ommeren's strong balance sheet to create a massive cash position with which it can shore up areas where it does not have a leading position. Analysts expect that to lead to buys in chemical distribution, where the company has said it will seek to double its turnover within five years. Most likely areas for expansion for the short term are Germany and eastern Europe, analysts said, and possibly Asia and Latin America in the longer term. But with Vopak still in its honeymoon, the company is not likely to rush into any major buys. "Acquisitions are on their radar screen, but they can be picky now," Shotanus said. - (By Matt Daily, Reuters)