Deutsche Post agrees pounds 3.7bn Exel bid

Deutsche Post will today unveil a Pounds 3.7bn agreed takeover of Exel, the UK logistics company, in an attempt to wean it off its dependence on mail delivery in Germany before it loses its monopoly in two years’ time.

Both boards approved the deal at the weekend to create the world’s biggest logistics group with a workforce of about 500,000 and combined revenues last year of Euros 52bn (Pounds 35bn).

Deutsche Post, Europe’s biggest postal service, is offering a mix of cash and shares that values Exel at about Pounds 12.40 a share. The shares component will be about 28 per cent. The German group is also proposing cost synergies of Euros 200m a year.

UPS, the most likely rival suitor, is believed to be watching the situation closely but it is not known if the US group will counter-bid. Analysts have suggested UPS’s rival, Federal Express, might also be interested.

The takeover will be seen as a success for John Allan, Exel’s chief executive, who will run the enhanced logistics operations from Bracknell, Berkshire. He will also gain a seat on Deutsche Post’s management board.

It will mark a personal triumph for Klaus Zumwinkel, chief executive of Deutsche Post, who has turned the former state-controlled conglomerate into one of the few companies in the sector able to stand up to the US giants of FedEx and UPS.

The deal will give Deutsche Post a leading position in supply-chain management, known as contract logistics and will be its largest acquisition, eclipsing its Euros 2.4bn takeover of parcels group DHL in 2002.

Deutsche Post has been anxious to diversify away from its core postage and package businesses into a broader range of logistics services. It is already the world leader in air and sea freight.

However, the price could alarm some investors such as DWS and Cominvest, two of Germany’s biggest fund managers, which have warned the group not to pay more than Pounds 12 a share.

But a shareholder revolt is unlikely, not least because of the 45 per cent stake held by KfW, the government-run bank which is seen as supportive.

The deal will be the latest in a series of acquisitions, including the parcel delivery companies DHL and Airborne, that Deutsche Post has made in its quest to boost revenues and profitability before its domestic market is fully opened to competition at the end of 2007.

But analysts are worried that Exel’s profitability is lower then Deutsche Post’s. The UK group had a pre-tax margin of 2.2 per cent in the first half against an operating one of 7.7 per cent at the German company.

Deutsche Post is being advised by Morgan Stanley. UBS and Merrill Lynch are advising Exel.