Exel and Deutsche Post rush to make deal
Top executives at Exel are set to meet their counterparts at Deutsche Post this weekend to try and hammer out the terms of a deal with the aim of launching a bid within the next two weeks.
"Both sides are trying to get a deal done as fast as possible but nothing has yet been agreed," one person close to the situation said.
The push to accelerate talks between the UK logistics company, which has a market valuation of Pounds 3.44bn, and Europe's biggest postal group came as investment bankers scrambled to try and interest counterbidders in a potential deal.
Analysts considered UPS of the US to be the most likely candidate. UPS refused to rule itself out, saying: "We look for opportunities and evaluate options for UPS continually." At the end of last year, UPS had Dollars 5bn (Pounds 2.7bn) of cash on its books. Its rival, FedEx, could also be interested once Deutsche Post reveals its offer.
Some of Deutsche Post's biggest shareholders have already expressed reservations about it overpaying for Exel, which has been the subject of takeover speculation since the beginning of the year. "The uncertainty is very high at the moment and we are highly sceptical of a deal at the current price," a leading German shareholder said.
Deutsche Post is cash-rich and low in debt but there are concerns as to how it would finance a deal. Fitch recently became the second credit rating agency, after Standard & Poor's, to place its rating on negative outlook. The German shareholder saidit was worried that the group could raise the money by issuing new shares,for which Deutsche Post already has the authority, rather than making an all-cash bid.
Deutsche Post also said it could convince its shareholders of the deal's strategic rationale.
Backed by a 44 per cent stake of KfW, the state-run bank, it expected little real opposition to materialise.
A deal would make Deutsche Post the world's leading logistics company. It would dominate the field of contract logistics, which enjoys much higher margins than its current focus on mail.
Deutsche Post is being advised by Morgan Stanley. UBS and Merrill Lynch are advising Exel.
Deutsche Post moves on Exel
Financial Times UK, London Ed1, Sec. FRONT PAGE – COMPANIES & MARKETS, p 19 09-05-2005
By By RICHARD MILNE and LINA SAIGOL
LONDON and FRANKFURT
* Proposal values logistics company at Pounds 3.6bn
* UPS and Federal Express could join fray
* Cost concerns Deutsche shareholders
Top executives at Exel were last night meeting to discuss a preliminary takeover proposal by Deutsche Post that values the UK logistics company at Pounds 3.6bn and could create the world's biggest logistics group.
The German postal group is understood to be offering a mix of cash and shares that values Exel at just above Pounds 12 a share. It has also proposed cost synergies of Euros 200m (Pounds 136m) a year and has offered John Allan, chief executive of Exel, a place on Deutsche Post's management board to head its logistics division.
If Deutsche Post can secure the deal, it plans to inject the logistics business of DHL, its UK subsidiary, into Exel. The new division would be run predominantly by Exel executives.
Exel's management was last night deciding whether Deutsche Post's preliminary proposal was sufficient to allow the German group to conduct due diligence on its books.
However, the German group runs the risk of a bidding war for Exel. UPS, the US postal group, has refused to rule itself out of any corporate action around Exel. Goldman Sachs has been appointed to advise UPS. Analysts have suggested its rival Federal Express might also be interested once Deutsche Post reveals its offer.
Deutsche Post's proposal may be opposed by some of its shareholders. Several leading institutional investors have told the Financial Times they are concerned about overpaying.
"We are not persuaded," said Christoph Berger, fund manager at Cominvest, a top-15 investor. "But we could rethink, especially if there is a cash bid with lots of synergies and the price does not go above Pounds 12."
Mr Berger said Pounds 12 was the upper limit that Deutsche Post should pay to secure Exel.
Tim Albrecht, a fund manager at DWS, Deutsche Post's second-biggest institutional investor, last week said Pounds 10 a share was fair value for Exel.
"There will be critical questions if the deal is done at a high price," Mr Albrecht said.
Deutsche Post, which is considering the deal as part of a drive to reduce its dependence on its mail business before it loses its postal monopoly in Germany in 2007, believes it can convince shareholders of the strategic value of a deal.
It is confident that its biggest shareholder, the state-run German bank KfW, which holds a 44.7 per cent stake, is unlikely to oppose a deal.
Deutsche Post is flush with cash and low in debt but there are concerns as to how it would finance a deal. Fitch and Standard & Poor's, the ratings agencies, have their ratings on negative outlook.
Deutsche Post is being advised by Morgan Stanley. UBS and Merrill Lynch are advising Exel.
