DSV plans to raise Panalpina’s profitability to a level in line with its own after the two logistics companies today agreed on a takeover offer that values Panalpina at $4.6 billion.
The new company, to be named DSV Panalpina, should begin trading in the fourth quarter of this year once all the regulatory approvals have been received. Panalpina’s poor profitability has been a long-standing source of frustration to its shareholders, but DSV has plans to turn that around.
Increased scale, synergies
According to investment research analyst Jefferies, DSV says synergies between the two companies will lift Panalpina's earnings before interest and taxes (EBIT) margin from 2 percent in 2018 to DSV’s level of 7.5 percent over the next two to three years.
Jefferies said in a note to customers DSV was targeting commercial synergies between the two companies, most notably in the form of cross-selling based on a stronger network and improved service offerings, improving Panalpina's yields, as well as cost synergies from the consolidation of operations, administration, facilities, and IT infrastructure.
The tie-up with Panalpina will add 49 percent to DSV’s revenue and 14 percent to its EBIT, while making DSV Panalpina the world's fourth-largest freight forwarder by revenue behind Deutsche Post DHL, Kuehne + Nagel, and DB Schenker.
Panalpina in February rejected an improved $4.2 billion all-cash offer from DSV, but the latest bid will be made by public exchange offer to all Panalpina shareholders. The offer already has the support of the logistics company’s major shareholders, which hold a combined 68.5 percent stake in the company — Ernst Gohner Foundation (45.94 percent), Cevian Capital (11.97 percent), and Artisan Partners (10.6 percent).
Under the terms of the deal, the Ernst Gohner Foundation will become DSV’s largest shareholder with 11 percent of the issued share capital.
“In view of the ongoing industry consolidation and resulting opportunities and risks, we have carefully considered various options for Panalpina with an open mind,” said Thomas Gutzwiller, member of the board of trustees and chairman of the independent Panalpina Committee of the Ernst Gohner Foundation. “Our board of trustees unanimously concluded that the proposed combination under the umbrella of DSV provides the best opportunities for Panalpina to meet future market challenges from a position of strength and to create value for all stakeholders.”
Bridging the shareholder divide
It was third time lucky for DSV, after Panalpina’s board of directors turned down two previous offers, in the process exposing deep rifts between the Swiss forwarder’s biggest shareholders.
In a strongly worded public letter to the Panalpina board of directors after the last all-cash bid was rejected in February, David Samra, managing director of Artisan Partners, expressed concerns about the Ernst Gohner Foundation’s relationship with the company.
He said the DSV offer demanded “serious and impartial consideration” and called for the foundation’s chairman Peter Ulber and vice-chairman Beat Walti to recuse themselves from the process, citing conflicts of interest. That would allow the offer to be considered “in a fair and impartial manner,” Samra said.
Ulber announced last year that he would not be standing for reelection at the 2019 annual general meeting following pressure from shareholders that wanted management to be more active in takeover talks.
But if turning down DSV and then engaging in talks with Agility Logistics was a strategy to improve the offer price, it worked. The all-cash offer of 180 Swiss francs per share ($180.82) was subsequently increased by 8 percent to 195.8 Swiss francs per share ($196.69).
According to Ulber, Panalpina’s board of directors and management explored different strategic initiatives and held discussions with DSV about a potential combination over the past two weeks.
“The board of director’s assessment is that the updated proposal of DSV is very attractive,” he said in a statement. “It recognises the quality of Panalpina’s employees, the company’s strong position as one of the world’s leading providers of supply chain solutions, and its special competencies and know-how in air and ocean freight. The board of directors recommends Panalpina’s shareholders to accept the offer.”
Panalpina’s main focus is on air and sea freight forwarding, an area where DSV is expected to grow profitability this year by about 10 percent, which Jefferies said implied further upside to the synergy potential.
The combined revenue of DSV and Panalpina stood at $18 billion in 2018, with 33 percent derived from air freight, 27 percent from sea freight, 26 percent from road freight, and 14 percent from contract logistics.