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APL ship deal clears hurdle
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October 16, 1997: 8:17 p.m. ET
Neptune Orient Lines seeks takeover of American President Lines
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NEW YORK (CNNfn) - A Singapore ship line's $825 million takeover of the second largest U.S. shipping line cleared an important hurdle Thursday.
Neptune Orient Lines announced that it wanted to takeover APL Ltd. (APL), commonly known as American President Lines, last April. The deal was contingent, however, on retaining subsidies paid by the U.S. government to nine ships in the APL fleet.
Ships flying the U.S. flag cost more to operate because they are required to use U.S. crews, which are paid higher wages than crews from most other countries, and meet U.S. construction and operation specifications.
In the interest of keeping ships available to support military actions overseas, the U.S. government pays subsidies to offset the higher cost of operating ships under the U.S. flag.
A total of 47 ships are in the subsidy program. Some labor-related interests questioned whether subsidy payments should be paid to a foreign owner. NOL and APL, however, outlined a plan whereby a U.S. company, American Ship Management, would operate the ships and lease them out on a long term basis to NOL-APL. The combined company would still benefit from the lower operating cost of the ships. However, control of the ships would stay with a U.S. company.
The Maritime Administration, which oversees the U.S. subsidy program, said Thursday it would approve that plan and continue subsidy payments on the ships, which amount to about $2 million per ship for a total of $18 million a year.
"Like the other ships in the Maritime Security Program, the nine ships to be operated by ASM will serve international commerce in peacetime. In time of war or national emergency, the ships and the worldwide transportation system supporting them will be available to provide support for America's armed forces," said Acting Maritime Administrator John Graykowski.
The MarAd decision must be reviewed by the Secretary of Transportation.
"This marks an important step forward in the process toward the consummation of the NOL- APL merger," said Timothy Rhein, chief operating officer of APL.
APL shareholders approved the $33.50 per share takeover offer in August. 
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