The hunter hunted? DPWN targeted by private equity company

DPWN CEO Klaus Zumwinkel has made a public statement welcoming the prospect of a major purchase of equity by Blackstone, the very large American private equity company. “Private equity and hedge funds are welcome because they invest and lift the shares higher” he said in an interview with a newspaper.

Yesterday rumours emerged in the US, UK and German stock markets that Blackstone was planning to buy a 10% stake in the company. The German state investment bank KfW initially denied that there would be a sale to Blackstone.
A further tranche of DPWN has just been sold by the German government through KfW, increasing the liquidity of the stock and making it easier for Blackstone to buy into the corporation. A 10% stake would make Blackstone the largest stockholder after the German government. Blackstone is also a major investor in the other big German privatised company, Deutsche Telecom.

Transportation infrastructure has been the target of substantial interest by private equity groups. Their motivation varies. Some –such as the pension funds are looking for long-term stable income stream and are willing to pay a premium. An example of this was the ‘ADMIRAL’ consortium that bought Associated British Ports earlier this year.

Others –such as Blackstone- are more aggressive. Attracted by the strong cash-flow of such companies they look to increase their capital investment through leveraging the finances of the companies they invest in.

DPWN is not only very large – something that Blackstone with an estimated USD 15bn to invest is attracted to, but it also has an interesting mix of businesses, from the high margin high asset postal and express business to the lower capital high cash flow of its logistics activities. This offers big opportunities to the sorts of ‘financial engineering’ accountants that Private Equity groups employ.

Major logistics companies have been the target of private equity recently, notably Hays Logistics and recently TNT Logistics. Hay’s Logistics was re-branded, re-organised and within two years, re-sold in what can be regarded as an ‘arbitrage’ deal. Apollo, the Private Equity group, says that recently acquired TNT Logistics would be a ‘platform for growth’ and therefore presumably will not be sold in the near future.

The objective of Private Equity funds is to release capital value locked up in the companies that they buy and therefore achieve capital growth for their shareholders. The management control they exert as owners enables them to do this in a way that shareholders in publicly quoted companies cannot.

So what are the prospects for Deutsche Post with Blackstone as a major shareholder? It seems unlikely that Blackstone could buy DPWN. Both as a recently privatised company and as one of Germany’s largest companies it is unlikely that Blackstone could mount a hostile take-over bid. Germany just has too different a view of shareholders’ rights. What is more likely is that Blackstone could demand a seat on the board and seek to influence DPWN’s strategy.