Deutsche Post denies pounds 3.7bn is too much to pay for Exel

The head of Germany's Deutsche Post yesterday defended his decision to launch a pounds 3.7bn agreed bid for Britain's Exel in a deal that will mark a further round of consolidation in the global logistics business.

Deutsche Post, which owns the courier DHL, is offering pounds 12.44 a share, 24% above the Exel closing price before announcement of the initial approach from the German company and 48% higher than the price at which Exel shares were changing hands before the UK company found itself at the centre of bid speculation in July.

Klaus Zumwinkel, Deutsche Post's chief executive, shrugged off some analysts' concerns that his company had paid a stiff price for the British concern, arguing that the combination of the two businesses would create the world's biggest logistics company.

Rejecting criticism over the price, which is more than twice the pounds 1.6bn the group paid to acquire DHL two years ago, Mr Zumwinkel said the combined logistics business and parcels operation would provide growing earnings to offset stagnant profits from the core mail division. "We can expect attractive growth rates in the future . . . driven by global trade and increased outsourcing."

Exel's chief executive, John Allan, who will integrate the two companies' logistics businesses at a UK base, acknowledged that the price Deutsche Post was prepared to pay had been a crucial factor in the directors' decision to back the bid. "We think it is a very attractive offer for our shareholders; it's a substantial premium to the historic share price."

Responding to concerns that Deutsche Post's bid values Exel on a multiple of 26.5 times last year's earnings, Mr Allan said: "It's a fair deal for both parties."

Though the level of the offer has raised eyebrows, analysts believe the price coupled with the backing of the Exel board make it unlikely that a rival bidder will emerge. "The only likely counterbidder would be UPS, and for UPS at this price level buying Exel would be value- destroying," ING analyst Andrew Beh said.

Mr Allan said: "We have not had any other approaches, either formally or informally." Both sides have agreed a pounds 37.4m break fee to be paid if either calls off the deal.

Mr Allan said it was too early to speak about job losses, pointing out that Deutsche Post had made its initial approach only three weeks ago. Combining the two companies' head office functions and administration centres was likely to cause some cuts, but he pointed to the ex perience of Exel since it was created by the merger of NTL and Ocean Group in 2000. "At that time we had about 50,000 employees; now we have some 111,000. On past experience we are optimistic about continuing to increase the numbers of people."

Deutsche Post made plain that the bid for Exel was the culmination of a strategy announced two years ago to become the world's leading supplier of logistics. As well as freight forwarding, Exel provides sophisticated logistics services for companies ranging from retail stores to automotive manufacturers.

The deal will propel the former state-owned group, which was first floated five years ago and is now majority-owned by private and institutional investors, into the number one positions in supply chain management as well as air and sea freight.

Deutsche Post, which ranks fifth in supply chain management, said the deal had substantial benefits in terms of geographical reach, with its own strengths in Europe and Asia complemented by Exel's presence in the UK and US.

Earnings at the mail business are projected to stagnate, at about euros 2bn (pounds 1.3bn) a year from 2007 when Europe's postal market is due to be fully liberalised – and Deutsche Post hopes to be entirely in private hands, with the state agency, the KfW, offloading its 44.7% holding by then.

It said the deal would boost earnings from 2007, with savings likely to reach euros 220m a year by 2008. The logistics business will account for 30% of sales, compared with 24% for mail.

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