Building a global logistics leader – Deutsche Post’s acquisition strategy
Deutsche Post World Net (DPWN) has announced the acquisition of two further companies to add to its long list of purchases: Securicor Omega Holdings in the UK (logistics and express) and Airborne Express in the USA (ground parcel network). The company already owned 50% (although did not have management control) of Securicor Omega and had initially negotiated an option to buy the remaining shares in 2005. However in order to integrate the company into its European network more rapidly DPWN decided to buy Securicor Omega outright two years ahead of schedule. (4/9/2003)
DPWN move into the US parcels market through its DHL subsidiary was also not unexpected. It had acquired a Canadian parcels company in late 2002 and had made no secret of the fact that it was looking to increase its presence in the North American market. The industry is presently dominated by the duopoly of UPS and FedEx which between them control about 80% of the market. Although Airborne has only about 6% market share, it can be used as a vehicle to channel Deutsche Post’s resources to build its operations.
Even though DPWN spent in the region of €1.2bn on these acquisitions, the main bulk of the company’s acquisition programme is complete (over €7bn spent to date). To place the company’s strategy in perspective it is necessary to re-visit the company’s development over the last five years.
DPWN’s strategy has evolved in three key stages, the first two of which have been completed. From the outset it was DPWN’s vision to become a world leader in mail, express and logistics. However, a number of internal changes had to be made first in order to provide a solid foundation for future expansion. This involved creating new management structures and investing in the express and mail infrastructure. These changes took place mainly within its home market of Germany. At the same time, the company integrated the post office network in the former East Germany, whilst cutting costs (post offices and employees) and improving productivity and quality.
When this was completed in 1997, DPWN was able to start extending its geographic scope and capabilities. Using the huge resources available to it, it embarked on an ambitious acquisition programme. The first of the major purchases was Danzas, a Swiss based freight forwarding company which had its own global network. Danzas was used as a vehicle for many of its other logistics targets which in Europe included Nedlloyd ETD and ASG. The global forwarder AEI was later acquired which added to the air freight capabilities of Danzas and improved its USA coverage.
At the same time as building its logistics business, DPWN was also constructing a European express parcels network, EuroExpress, either through complete acquisitions or partnerships with existing domestic parcels companies.
The Company completed the majority of its acquisition programme by the end of 2001, although purchases are still being made to in fill capability or strengthen geographic coverage. Securicor Omega and Airborne Express are examples of this. There are still many areas in which DPWN has yet to build out its operations or increase its capabilities, and consequently there are likely to be further acquisitions in the future.
The third and final stage of the strategic plan is the full integration of the acquisitions and the leverage of the global platform which has been developed. This has been dubbed the STAR programme and it aims to increase operating profit by around 40% to €3.1bn in 2005. This will include the re-organisation of many of DPWN’s subsidiaries and specifically the re-branding of the parcel and logistics operations under the company’s globally recognized DHL brand. The company has also made it known that under the re-organisation the four main business units – mail, express, logistics and financial services – will have greater commercial freedom.
Another example of the scope of the programme is the recent co-operation announced between the company and Cisco Systems, a provider of web based IT networks. The partnership is aimed at creating standardized infrastructure in finance and internal communication throughout the DPWN enterprise. The savings from initiatives such as this and others (such as the rationalization of head offices and transport networks) will play an important role in increasing the profitability of the company, especially since management sees no boost in 2003 from an upturn in the global economy.
There is also an ulterior reason why the company will come under intense pressure to make the integration programme as successful as possible. Political sources in Germany have let it be known that a further placement of government owned shares in Deutsche Post is likely this year. The government wants to raise €5.5bn from the sale of shares in DPWN and/or Deutsche Telekom. Increasing shareholder value through STAR will ensure that the government maximizes its revenues from the privatization.
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Author:John Manners-Bell , Transport Intelligence Ltd
