DSV’s $4.1bn Acquisition of Panalpina

By Gustaf Baavhammar and Chris Leung (University of Warwick), Felix Bacchetta (Wharton School) - Date: 20/02/2019

Overview of the deal

  • Acquirer: DSV

  • Target: Panalpina

  • Estimated value: $4.1bn

  • Announcement date: 16/01/2019

  • Acquirer Advisors: Goldman Sachs, J.P. Morgan

  • Target Advisors: UBS

Denmark’s DSV launched a $4.1 bn takeover proposition for Swiss rival Panalpina who faces increasing pressure from Cevian Capital, Europe’s largest activist investor, to sell itself based on the company’s stagnating share price due to weak profit margins. DSV is offering CHF 55 per share coupled with 1.58 of its own shares for each Panalpina share, implying a 26.6x EBITDA multiple at a premium of 65% within the freight sector. Although a steep premium, shares of the Danish logistics company rose 5% to DKK 498 on the announcement day. DSV boasts being the world’s fifth largest freight forwarder behind industry giants DHL and Kuehne + Nagel, following rapid growth in recent years elicited through a series of acquisitions, with Panalpina being the next target. Panalpina’s operating margin sits at roughly 2.6%, far below DSV’s mighty 7%. Even within air and sea transportation, which are Panalpina’s primary activities, DSV is significantly more profitable. However, according to Jefferies analysts, the acquisition is expected to add 50% to DSV’s revenue and 17% to EBIT in year 1. A deal with Panalpina would allow DSV to become the second largest industry player, as it would allow the NewCo to both reduce costs and realize managerial synergies.

“A combination of DSV and Panalpina would create a leading global transport and logistics company with significant growth opportunities and potential for value creation” - DSV

Company Details (DSV)

DSV is a Danish transportation and logistics company that offers transportation solutions via road, air, sea and train. Formed by nine independent Danish hauliers, the company experienced rapid growth and international presence through multiple acquisitions.

- Founded in 1976, headquartered in Hedehusene, Denmark

- CEO: Jens Bjørn Andersen

- Chairman: Kurt K. Larsen

- Number of employees: 47,000

- Market Cap: 95.239bn - EV: 99.09bn

- LTM Revenue: 79.05bn - LTM EBITDA: 5.9bn

- LTM EV/Revenue: 1.25x - LTM EV/EBITDA: 16.79x

* Currency in DKK

Company Details (Panalpina)

Panalpina is a Swiss provider of freight forwarding and logistics services, with concentration within the intercontinental air and ocean freight services.

- Founded in 1935, headquartered in Basel, Switzerland

- President and CEO: Stefan Karlen

- Number of employees: 15,000

- Market Cap: 3.63bn - EV: 3.67bn

- LTM Revenue: 5.91bn - LTM EBITDA: 141.2m

- LTM EV/Revenue: 0.62x - LTM EV/EBITDA: 25.96x

* Currency in CHF

Projections and Assumptions

Short term consequences

Despite the fact that the combined entity is set to generate expected revenues in excess of DKK 110bn and EBITDA of more than DKK 7bn, excluding synergies, shareholders have congregated into two opposing sides following DSV’s offer. On one side stands the Ernst Goehner Foundation, possessing a 46% stake, who are reluctant to sell. Contrastingly, several stakeholders in the other camp, principally Cevian Capital, owning 12.3% of the freight company, suggested a takeover is necessary, citing declining business in oil and gas industry, delays in implementation of new IT system and overall sluggish growth. DSV’s current proposition worth roughly CHF 170 a share is far below the board of Panalpina’s pain barrier, which when coupled with the fact that the Swiss company’s own shares rose by 31% to CHF 179.6 (slightly over DSV’s offer price) is indicative of a weak offer. This is further accentuated given that other companies also expressed interest in acquiring Panalpina, in particular, Kuehne + Nagel, another Swiss freight rival with alumni in Panalpina’s executive positions. However, Kühne recently addressed DSV’s bid for Panalpina as “hopelessly overvalued”, establishing that a