HONG KONG — APL Logistics is moving closer to the checkout queue with three companies reportedly on the shortlist to buy the NOL Group logistics unit, one based in Korea and two U.S. firms.
So far CJ Korea Express, South Korea's largest transport and logistics company, is the only company to confirm, via a Korea Exchange filing, that it has been shortlisted to take over APL Logistics. The other two companies have been identified by Bloomberg as New York-based private equity firm KKR & Co. and U.S. third-party logistics provider XPO Logistics, based in Connecticut. The price tag is $1 billion, with final offers expected by next month.
XPO Logistics has been in heavy acquisition mode recently. Its freight brokerage unit acquired 3PD, Optima and Pacer, generating huge increases in revenue and margins in the third quarter, with Pacer’s forwarding operations helping to grow international transactions. XPO also took over New Breed Logistics, completing the acquisition in September, ACL in July, and NLM was acquired by the company’s expedited transportation division.
Could APL Logistics be the next company to be absorbed by a fast-expanding XPO? The U.S. logistics operator appears to be in a strong position to make a concerted bid for APL Logistics following a third quarter that Bradley Jacobs, chairman and chief executive officer, described as “transformational”.
“We raised $1.2 billion of capital to fund our growth. We generated a net revenue increase of more than 400 percent, reflecting the benefit of acquisitions and 48 percent organic growth,” the XPO Logistics head said in an earnings statement.
Despite the acquisitions, or perhaps because of them, XPO Logistics’ net loss for the first nine months of the year rose to $53.6 million, up from $37.9 million in 2013.
CJ Korea Express has been planning on growing its business outside its home base and APL Logistics will give the Korean company a global reach in core verticals of auto, consumer, industrial and retail following steady demand growth across all markets, particularly in Asia and the Middle East.
NOL has remained tight lipped about the sale, referring queries to its statement to the Singapore exchange back in August where the group said it continually evaluates all available options “to improve the strategic positioning and performance of its businesses,” and these included the possible sale or listing of its logistics business as a separate, stand-alone unit.
APL Logistics accounted for 18 percent of NOL’s revenue in 2013, and Barclays said in a note to customers that the sale of the unit could lead to lower future returns.
Andy Lane, partner at Container Transport International (CTI), said the divestment of APL Logistics would help with the cash flow.
“APL Logistics is a very successful company if you benchmark it against other shipping lines’ forwarding arms,” he said. “It is way ahead of Damco, for instance. It doesn’t make enough to balance APL’s losses, but it is profitable.”
NOL Group reported a third-quarter loss of $23 million with weak freight rates and lower volumes affecting earnings at its container shipping division, APL. Chronic port congestion on the U.S. West Coast raised the line’s operating costs, as a significant portion of the fleet is deployed on the Asia-U.S. trade.
APL has been aggressively cutting costs over the last two years, which delivered $290 million in savings from January through September.
Lane said APL had put 34 new and efficient ships on the water over the last three years while getting rid of 59 old and chartered ships, but that has left the company with an unhealthy debt-to-equity gearing ratio.
“APL is in a situation where it simply can’t add more debt into its profile and may be forced into selling its APL Logistics to improve the gearing and get healthy again,” he said.
Third-quarter revenue at APL Logistics reached $399 million, an increase of 8 percent from a year ago, with core EBIT of $15 million.
“APL Logistics continued its steady performance year-over-year as a result of growth in key emerging markets,” APL Logistics president Beat Simon said when the results were announced in October. “We remain focused on growing our business in key industry verticals and high-growth markets.”
Contact Greg Knowler at firstname.lastname@example.org and follow him on Twitter: @greg_knowler.