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It is a race against time for DSV, so I am on M&A high alert, as usual, when the Danish freight forwarder is in the limelight – because if Switzerland’s Panalpina is the target, that could move the M&A needle in transport and logistics. DSV is the bidder that could do wonders to confidence in logistics deal-making.

Value, what value?

Since DSV said it would “not pursue an acquisition of Ceva” in late October, a trading update, followed by a rather uninspiring conference call with analysts – as well as a formal denial that turmoil is brewing between executives (click here) – is all the excitement we’ve had with DSV, alongside large share buybacks, which started when it could not allocate capital elsewhere.

DSV abandons Ceva

dsv

Source: DSV

How is it going, then, with its plan B?

DSV latest announcements

Source: DSV

The Danish company has repurchased lots of shares in the past few weeks at prices well above its market value as of 30 November – Dkr504.4 ($76.61) – before the financial markets today cheered at mildly encouraging trade war developments over the weekend.

It started paying on average Dkr525 a share to reduce its share headcount…

DSV buybacks

Source: DSV

…then Dkr527…

DSV buybacks

Source: DSV

…then Dkr525, again…

DSV buybacks

Source: DSV

…then a bit less, Dkr520 to…

DSV buybacks

Source: DSV

…Dkr518, finally, on average.

DSV buybacks

Source: DSV

Before today – when DSV stock opened slightly above Dkr528, boosted the weekend news, although it soon fell to Dkr517 (+2.5% on the previous Friday close) – its stock traded in a tight range, essentially changing hands where it did before the release of first-quarter numbers on 1 May.

DSV share price

Source: Yahoo Finance

Ever since the turn of the year, the Danish group has spent some serious money, with the buybacks bill now expected to amount to Dkr4.2bn ($629m) by early February 2019 (2.5% of its market cap) from 1 January 2018. The latest “share buyback programme will run from 26 October 2018 to 1 February 2019 at the latest, both days inclusive,” it said.

Buybacks

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Source: DSV

The budget for tax-efficient share repurchases will certainly deliver earnings accretion, but so far this year – DSV is up 5.9%, plus dividends, against a flat transport index – such actions have garnered incrementally lower returns and little joy for its own shareholders. Some asset managers have privately voiced their frustration, particularly in the way the CEVA situation was handled and how millions of dollars of capital were allocated instead.

The numbers seldom lie: in the past five weeks alone, it bought back some 1.25m of its own shares, at an average price of Dkr518.3, spending Dkr646m, more than half its entire Dkr1.2bn buyback budget through to early 2019, or about $2.7m a day.

At this speed, it will be likely done by early January, when the Cevaffer launches – so there is still time for M&A fireworks, if it breaches Friday’s level and tests the Dkr450s area.

‘Others’

When I wondered whether the DSV story was hype or hope, it was crystal clear the Danes had a deal up their sleeve – Ceva – by year-end, but the Ceva affair has been very poorly managed.

In the latest call with analysts, DSV said it could not act before Ceva was IPO’d, as it was busy with UTi. Those remarks came months after it had said the UTi integration was completed (and most of the benefits reaped); while XPO Logistics is in a similar situation in terms of M&A. The old saying “a trouble shared is a trouble halved” does not apply here.

Based on my estimates, following the recent consolidation of CMA CGM Log, Ceva Logistics got closer to the $8bn pro-forma revenues mark, which is not far off Geodis’s projected turnover this year – and the latter, too, offers attractive contract logistics, freight forwarding and road exposure, as well as ebit margins that are almost a third of DSV’s.

Unfortunately, its parent, SNCF, wants to grow it rather than sell it, but I would not be surprised if DSV/Geodis rumours surfaced as early as next year, if Ceva ends up in CMA CGM’s hands.

DSV has been quick to repurchase stock, so it is possible that its 1 Feb 2019 deadline might be pushed forward by a couple of weeks. Then, look at what kind of situation we might have soon after the Christmas break…

Post-Xmas binge

CMA CGM said it intended to launch the offer for Ceva shares it doesn’t already own “on or about January 7”.

CMA+Ceva

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Source: CMA CGM and Ceva

The key details of the offer are shown in the table below.

CMA+Ceva

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Source: CMA CGM and Ceva

DSV’s value destruction has become a direct function of CMA CGM’s M&A actions, but CMA CGM doesn’t own Ceva yet, and if by early January DSV stock weakens further – such as closer to or below its annual lows – the pressure to do something, anything, could be unbearable for its management team.

Several CMA CGM executives have already joined Ceva in key positions, with the appointment of Serge Corbel being the biggest highlight: make no mistake, I understand why many of you think this is a done deal.

But what if CMA CGM and DSV executives were under the same roof? That’s unlikely, I know.

Or what if CMA CGM is playing it smart to fetch a top premium from DSV because, after all, vertical integration is a good idea on paper, but integration hurdles are real?

Good spirit

CMA CGM’s latest asset disposals to Ceva amused me, as the French carrier did exactly what should be forbidden by rule of law, in my view: when a cornerstone investor (CMA CGM) takes a large stake in a company (Ceva) and then starts playing with its new toy (Ceva), shuffling the assets of a target that it does not own.

It is one thing to exercise pressure on the board of a company that without serious help would never have managed to raise the amount it was after at IPO; it is quite another to entertain corporate activities where strategic actions are opportunistic and, based on the available information, make little sense if the aim is to render Ceva – still a money pit despite the latest IPO-led restructuring – stronger financially.

An informal takeover of Ceva has already happened on the managerial side, but CMA CGM could now be looking to exploit Ceva as much as it can, and then even receive a premium from DSV to get rid of its blocking stake.

I wonder how its advisors feel about it.

CMA CGM advisors

Source: CMA CGM and Ceva

CMA’s free cash flow in the first nine months was materially lower than last year, and although the damaged was contained, debt remains high. This is rarely a good combo in a late cycle.

With UTi Worldwide, it took DSV about a year and a half to convince the target it could make sense to be taken over – now chief executive Jens Bjørn Andersen doesn’t have a year, he has just five weeks.

Unfortunately for us, in a competitive environment where Panalpina is not willing to sell on most of its suitors’ terms, DSV’s terms are not appealing enough for the sellers’ shareholders to get rid of their holdings. So, if you think it smells of a no-deal environment, you might well be right, but wait until January before calling it a stalemate.

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