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By Malory Davies
Christian Salvesen is backing a takeover bid from French group Norbert Dentressangle that values the business at £254.4m.
There have been suggestions that Dentressangle is over-paying – the price represents an 80 per cent premium over Salvesen’s share price immediately before the bid. However, Salvesen’s interim results for the year to 31 March show an asset value for the business of £262.5m.
The fact that investors have been valuing the business at less than the value of its assets is not simply a result of the struggle it has been having to rebuild the profitability of its transport business. It also reflects the generally poor view that the stock market takes of the third party logistics sector as a whole.
And the fact that members of the Salvesen family are supporting the deal is also highly significant. Family members are thought to own as much as 30 per cent of the company and they have played a key role in blocking bids in the past.
In 1996, Salvesen turned down a bid from Hays which valued it at about £1 billion saying its was difficult to see any industrial logic in the move. The Hays distribution business is now part of Kuehne + Nagel. Salvesen also rejected an approach from TDG in 2004.
Despite the fact that a number of major shareholders, including members of the Salvesen family, have backed the Dentressangle offer, it is not yet a done deal and higher bidder could yet be successful. However, there is a question mark over whether another bidder would be willing to top the Dentressangle offer.
Transport problems
The transport business has been a major cause of Salvesen’s woes in recent years. When Salvesen bought Swift Transport Services in the early 1990s it was seen as a major coup. Swift had a high reputation and Salvesen fought off a strong bid from Exel to secure the deal. The problem is this network operation has historically been focused on manufacturing industry and, as is all too obvious, this has been in steady decline in the UK over the past few years.
Stewart Oades’ strategy has been to move the focus of the business away from manufacturing and find new markets for its network operations.
Salvesen chairman David Fish said in the interim report: “A new managing director and new management team are working to restore the UK Transport business. Progress during the year was slower than hoped, due in part to a difficult start-up for our national tyre distribution partnership with Goodyear Dunlop. The unplanned start-up costs were a significant factor in the increased losses for the year. As part of the turnaround plan for our UK network business, we are investing in new systems to achieve rapid improvement in operational efficiency. For the longer term, we are investigating options that will require more fundamental infrastructure changes.”
Major player
Dentressangle sees the takeover as a major step in its plan to become a major player in the European market. Chief executive Jean-Claude Michel said: “I am convinced that the acquisition of Christian Salvesen will give rise to significant value creation. I am delighted that key shareholders of Christian Salvesen, including certain members of the Salvesen family, and the board of Christian Salvesen have agreed to support our offer. We look forward to working with the employees of Christian Salvesen to provide the highest level of service to our customers.”
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Salvesen chief executive Stewart Oades (pictured) said: “I am pleased we have reached agreement to form an enlarged group which will provide a stronger organisation, with greater opportunities for employees and customers. The combination will create a leading transport and logistics business with a wider range of services and capabilities, greater geographical coverage and a commitment to bringing together the best of both businesses.”
Dentressangle is headquartered near Lyon in France and reported sales of some £1bn (1.6bn euros) last year. It has 190 locations in 13 European countries. Christian Salvesen reported sales for the year ended 31 March 2007 of £899m – up 10 per cent, but operating profit was down 15 per cent to £18.1m.
Takeover logic
Dentressangle says the takeover has a number of benefits:
* creation of one of the European market leaders in transport and logistics;
* enhancing Dentressangle’s and Salvesen’s complementary strengths including expansion of distribution networks and strengthening of presence in food and frozen products distribution;
* increasing Dentressangle’s geographic footprint into the UK, Benelux and the Iberian Peninsula;
* attractive financial profile including potential for increased margins, strong cash flow and the realisation of significant synergies;
* building on Christian Salvesen’s established Transport Division United Kingdom turnaround programme including initiatives underpinning efficiency and maintaining strong customer performance; and
* developing relationships with shared customers and pan-European clients through cross-selling initiatives, as well as approaching new clients with an expanded pan-European offering.
History
Christian Salvesen was formed in 1872 by the Salvesen family, focusing initially on providing shipping services. For much of its early life the company was one of the world’s largest whaling companies.
It diversified into the frozen food industry in 1958 by opening its first cold store in the UK and expanded into frozen food distribution as customers requested transport for their frozen food operations. Its logistics and transport business was thus born.
Christian Salvesen further diversified its activities into other areas during the 1970s, but continued to focus on the food services sector, expanding its cold stores and food processing facilities, and subsequently winning a major frozen food contract with Marks & Spencer in 1986.
During the 1980s, Christian Salvesen acquired a number of businesses including Aggreko, which was demerged from the group in 1997, when it also sold a number of other non-core businesses to focus on logistics and transport activities. During the 1990s, Christian Salvesen expanded its presence within the network transport sector in Europe by the acquisition of Swift in the UK in 1993, Gerposa in Spain in 1999 and later Darfeuille in France in 2001. It also built up its frozen and chilled logistics business across mainland Europe and the UK, creating operations in five countries.
It operations in the UK, France, Benelux, Ireland, Portugal and Spain. Salvesen employs about 14,000 people, across approximately 200 sites.
