Activist investor Cevian has helped solicit a bid for subscale freight group Panalpina. - https://reut.rs/2VUUMaV
Denmark’s DSV, worth $13 billion, on Wednesday lobbed an offer Panalpina’s way worth 170 Swiss francs per share in cash and stock – one-quarter above the Swiss group’s undisturbed price. Shares in the target surged to almost 180 Swiss francs, anticipating either a counterbid from long-time Swiss suitor Kuehne + Nagel or a higher offer from the Danish group.
Credit goes partly to Cevian Capital, the activist investor and 12 percent Panalpina owner which last year successfully pushed the board to fire its chairman and consider a sale. Shares fell 14 percent in 2018, but more than made that up after Wednesday’s deal-linked surge.
Panalpina’s board, which is currently pondering what to do, will probably say the DSV offer is too low and that the company has a promising independent future. That’s questionable: global trade is slowing as tariffs rise, which means fragmented air and ocean freight groups need cost-saving M&A to keep their bottom lines growing. Panalpina, which in 2017 had a 1 percent share of the global ocean freight market and a 4.2 percent chunk of air freight services, will struggle to compete with bigger peers offering lower prices to the companies whose supply chains they help manage. Analysts covering Panalpina reckon 2018 operating profit was just 8 percent of gross profit, according to Refinitiv, compared with 13 percent at larger rival Kuehne + Nagel.
Yet it’s less clear that DSV or another buyer could make a return by going much higher. At 180 Swiss francs per share – roughly where Panalpina’s stock currently trades – the effective purchase price stripping out net cash is 4 billion Swiss francs. Next assume 1.5 billion Swiss francs in 2018 gross profit rises a healthy 5 percent a year and that 16 percent of it translates into operating profit by 2023 – double the current margin. After tax at Panalpina’s 29 percent rate, the buyer’s return after five years would be 217 million Swiss francs, or just 5 percent of the purchase price. Given the sector’s probable cost of capital is 6.5 percent, using broker Baader Helvea’s estimate, the incipient M&A freight battle has questionable cargo.