Exel could face counter bid to Deutsche Post’s agreed takeover
Deutsche Post AG’s agreed 5.5 bln eur (3.7 bln stg) cash and shares takeover of UK logistics company Exel PLC could be scuppered by rival bids, with American giants United Parcel Service Inc and/or Fedex Corp tipped to spoil the party.
Although both Deutsche Post and Exel have agreed a 37.4 mln stg penalty if either side walks away from the recommended offer, the UK group’s board, led by chairman Nigel Rich, has a fiduciary duty to consider any other offers.
The German group’s recommended bid is pitched at 12.44 stg a share — 9.0 stg (some 73 pct) in cash with the balance in Deutsche Post shares. Shareholders will also receive the 10 pence a share interim dividend to be paid on Oct 3.
Some analysts believe the equity element to the offer could be the deal’s Achilles heel.
‘Despite a mix-and-match agreement potentially watering down the share element for some Exel shareholders, we suspect this will be unpopular and leave the door open to a cash offer from UPS,’ said Alastair Gunn, analyst at Arbuthnot.
He reckons major shareholders will likely sit tight until the intentions of UPS, which has reportedly appointed Goldman Sachs to look into the logic of a counter offer, are better known.
Deutsche Post’s bid represents a premium of approximately 48 pct to Exel’s closing price of 838.5 pence on July 7 — the day before recent speculation regarding a possible offer, and a multiple of 26.6 times Exel’s earnings per share of 46.8 pence for the year to end-December 2004.
The German group sees the deal as ‘modestly’ earnings enhancing pre-restructuring costs in the first year and earnings enhancing in the second year.
Analysts at Dresdner Kleinwort Wasserstein, the German investment bank, reckon Deutsche Post is paying a high premium for Exel, reflecting the targeted cost synergies of 220 mln eur by 2008.
‘As a consequence, we believe the likelihood of a counter offer is now low, probably below 25 pct, but cannot be completely ruled out,’ they said.
Analysts at ING believe the only likely counter bidder would be UPS but reckon buying Exel for more than the 12.54 stg a share currently on the table would be ‘financially unattractive’.
Deutsche Post’s offer, which creates a world leader in air freight forwarding, sea freight forwarding and contract logistics, is unlikely to face much opposition from its own shareholders.
German fund managers Cominvest and DWS made noises ahead of the formal bid, suggesting Deutsche Post should not pay over 12 stg a share. However, Deutsche Post’s chief executive, Dr Klaus Zumwinkel indicated today that KfW, the government-run bank which holds 45 pct of the equity, is supportive of the deal.
Deutsche Post’s offer will be implemented by way of a scheme of arrangement. The scheme document is expected to be posted in the second half of October and is expected to become effective in the first half of December.
It will require the approval of 75 pct of Exel shareholders who vote and a majority of shareholders must vote. It will also be subject to regulatory approval in numerous jurisdictions.
Meanwhile, analysts reckon today’s deal could spark further consolidation in the UK logistics sector as players, such as Wincanton PLC, Christian Salvesen PLC and DX Services PLC, seek greater scale.
At 3.06 pm shares in Exel were up 1 pence at 12.29 stg, off an intra-day high of 12.47 stg. Shares in Deutsche Post were down 0.49 eur at 19.49 eur.
