After months of speculation TNT has announced that it has signed a Sale and Purchase Agreement to sell its logistics division to affiliates of Apollo Management, LP, a leading private equity firm with offices in New York, London and Los Angeles.
The intended sale is part of TNT’s Focus strategy in which the company announced last year that it would focus on its core competency of managing delivery networks. The total transaction value is ?1,480 million on a cash and debt free basis, of which ?15 million will be received in the form of a five per cent equity stake in the new company. The price was at the higher end of expectations but complicated by the stake that TNT will retain in the new company. Asked why TNT retained the five per cent, the management said that it was partly to reassure the workforce ‘that the new business has a future’. It also seems that Apollo drove a hard bargain. It is unclear how or when TNT Group will dispose of this stake.
After completion of the transaction, Dave Kulik will resign from the TNT Board of Management to become CEO of the new company.
Last minute bid
It had been rumoured that French private equity company PAI Partners was the likeliest buyer. However it is believed that Apollo made a last minute bid which was perhaps 30 per cent higher than the price rumoured PAI had agreed to pay.
The question of the future of the Wilson freight forwarding business also appears to be in doubt. Questioned about it on an analysts’ call, TNT CEO Peter Bakker commented that TNT was still studying the potential synergies of Wilson and the Express freight networks, and that its fate would be announced later in the year.
As for Apollo there is no indication what it wishes to do with the business – secrecy is a characteristic of the Private Equity business. However it is clear that although Apollo does own some logistics businesses, such as US freight management company Pacer, it is not particularly focused on the sector. The TNT management said that Apollo wished to use the logistics business as ‘a platform for growth’ and intended to retain the existing management team as a standalone company.
The transaction to buy TNT Logistics should be finalised before the end of this year. It is also interesting to note that despite the sale of its logistics division TNT does not appear to wish to leave the logistics business completely. In a presentation on the strategy of the remaining businesses of TNT, Peter Bakker laid heavy emphasis on the logistics services capability of the new TNT. Integral to this was serving commercial and industrial sectors in particular.
In other news, global rail and logistics group Deutsche Bahn released details of its first half performance. The company set records in transport performance, revenues and operating profit and rail freight transport performance reached a new peak.
Revenues rose by 19.1 per cent to ?14.5 billion due to significant increases in rail transport and international logistics (first six months of 2005: ?12.2 billion). On a comparable basis, excluding the newly acquired US logistics services provider BAX Global, revenues rose by 8.1 per cent. The operating profit (EBIT) showed a significant improvement of ?480 million to ?936 million helped by a turnaround at the Railion business unit.
The Schenker business unit, including BAX Global, saw a revenue increase of 45.1 per cent compared with the first six months of 2005 benefiting from the strong growth of the international logistics markets and the first-time inclusion of BAX.
In European land transport, the Schenker business unit significantly increased its shipment volume. It also reported strong growth in its air and sea freight businesses, claiming that it had obtained growth rates above the market average.
Economic foundation
Hartmut Mehdorn, CEO and chairman of the Management Board, commented that the results provided the economic foundation for an initial public offering.
Mail, express and logistics giant Deutsche Post World Net (DPWN) also revealed its interim 2006 results. Consolidated revenue grew, both organically and through acquisitions, by 36.4 percent year on year, to ?29.3 billion. Excluding revenue from Exel, acquired at the end of 2005, the figure was ?23.6 billion.
Management commented that the recent acquisitions of Exel, BHW and Williams Lea had still to be reflected in improved profit figures because of the high costs of integration. Results were also impacted by high one-time gains recorded in the previous year and, as expected, by the express business in the United States. Consequently profit from operating activities (EBIT) fell slightly in the first half-year by 6.8 per cent to ?1.558 billion; the previous year’s figure was ?1.672 billion.
Revenue from DPWN’s logistics division came to ?9.9 billion in the first half, up from ?3.6 billion the previous year. Acquisition effects amounted to around ?5.7 billion due to the inclusion of Exel from the beginning of 2006. EBIT for the division in the first half of 2006 reached ?324 million, against ?133 million the previous year. According to CEO Klaus Zumwinkel: ‘The new management structures are in place, and we’re very pleased with the integration of Exel. All business units showed sustained organic growth, and returns are developing better than planned.’
