Author/s: John G. Parker
Issue: Dec 20, 1999

Japan Airlines sells 20 percent stake; international carrier plans offer in 2001

DHL International executives are playing down the impact, but the $5.5 billion IPO by United Parcel Service in November must have been a real eye opener for the smallest of the four integrators. Following Big Brown's move into capital markets, Brussels-based DHL was suddenly the odd man out as the only one of the quartet not publicly traded.

"Now that our three main competitors are publicly traded, I guess we could have been seen as the one walking out of step with the army, so to speak. So I guess it did put some pressure on us in that respect," Simon Clayton, chief financial officer for DHL, told Traffic World after the company announced it plans to sell up to 23 percent of the company through an IPO within three years.

Still, Clayton denies DHL's decision is simply a reaction to the UPS IPO. "This has been on what I call my contemplation book for some time. UPS has served to highlight the attraction of this industry, given the emergence of e-commerce as a serious business proposition," he said. "But we certainly didn't wake up one morning and see UPS going to market and say, 'Gee what a good idea, why don't we do that.'"

In announcing the IPO, DHL's executive chairman, Patrick Lupo said: "The advantage of it would be to access broader sources of financing in the public markets to support our business development and acquisitions, as well as giving liquidity to shareholders. We have some exciting opportunities and will be pursuing our plans actively over the coming months."

According to a DHL source, the most likely timing for the IPO is during the first half of 2001.

The IPO opportunity arose after Japan Airlines announced Dec. 10 that it had sold a 20 percent stake in DHL, retaining just 6 percent. JAL paid $100 million for the shares and reportedly earned $294 million on the sale to two independent investment trusts set up by DHL. The trusts are financed by WestDeutsche Landesbank and backed by loan guarantees from DHL's main shareholders, Deutsche Post and Lufthansa Airlines. The two trusts will manage 23 percent of DHL's shares for a period of up to three years.

"It's basically a mechanism to enable the shares to be held … and to avoid the company having to be burdened with the financing of them," Clayton said.

Under the purchase agreement, existing shareholders can reacquire the shares within three years. "That's basically a red button, an unwind mechanism in the event the company has not come to market by then. There has to be some mechanism to bring those shares either back to the company, or to the other shareholders."

Last year, DHL Worldwide Express, which includes U.S. carrier DHL Airways Inc., had revenue of about $5.2 billion, making it much smaller than UPS or Federal Express. DELL, however, hopes to convince the public ahead of the IPO that size doesn't always matter. Its leadership in international express markets is what DHL will be talking about as it tries to differentiate itself from its competitors.

"When you compare us sizewise, you see that Fedex and UPS ostensibly have much bigger revenue bases than we have, but a large portion of that is in the domestic U.S. market and that's a very different kind of product," Clayton said. "If a customer wants us to do something domestically, we do it, but we don't price ourselves to compete with local road haulers. Our traffic is geared to customers who want to ship things internationally."

According to market surveys, DHL has the largest share of international air express shipments on a worldwide basis. One estimate says that its share is about 38 percent, followed by FedEx with about 20 percent.

"We are a true global company," said Clayton. "Our revenue is very evenly spread around the world."

As a global company, DHL plans to offer its shares broadly but the listing most likely will be in Europe.

"I think it would be unlikely that we would formally list on U.S. markets, but clearly the larger U.S. institutions are going to have an appetite for our stock," Clayton said. "We will achieve that through some kind of specialized placement offering, which covers the U.S."

With two major shareholders, Lufthansa and DP, DHL in many ways already operates like a publicly traded company, according to the chief financial officer. Still, going public will force some changes.

"The short-term demands of the capital markets on earnings will be something new for us," Clayton said. "We have been able to invest for the long term in the past, so we will have to learn how to mange long-term balance with short-term aspirations."

COPYRIGHT 1999 Journal of Commerce, Inc.

COPYRIGHT 2000 Gale Group

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