Screen Shot 2018-04-20 at 11.59.35
© Hieronymusukkel & CEVA

A banker’s dream, when he leads a challenging deal that aims for a top-end valuation, is to be able to share news with his investors that could render it a deal to remember.

So, can you imagine what kind of boost the arrangers of an IPO can get when a listing is launched along with the announcement that a trade buyer is snapping up a large stake in the business?

Enter CMA CGM and CEVA Logistics: quite simply, today’s announcement that the ocean carrier has agreed to become a key shareholder – if the IPO goes through, and it will – is a stroke of genius.

On top of that, it could well push us nearer the final episode of the CEVA-Apollo saga.

IPO launch

The French box line is showing all its rivals that it could make a lot of sense to invest in the vertical integration of services, something I touched upon earlier this week regarding Hapag-Lloyd and Damco.

Rodolphe Saade, chairman and CEO, said on Twitter today: “Together, the two companies will also explore possible cooperations, allowing us to propose an ever more differentiated and qualitative offering while integrating services beyond maritime transport.”

CMA CGM has agreed to acquire a stake “of nearly 25%” in CEVA, committing “to subscribe for mandatory convertible securities of CEVA in an estimated amount between Sfr380m and Sfr450m”. ($391m-$463m)

“These securities will be convertible into CEVA common shares, subject to obtaining all required regulatory approvals,” CMA CGM said, noting that “this equity investment takes place in connection with CEVA’s planned initial public offering on the SIX Swiss Exchange, announced on 20th April 2018, and remains conditional upon its successful completion.”

Technically, this resembles a private placement part of a multifaceted deal in which existing shareholders are willing to be significantly diluted, and that’s reasonable given the implied price that the CMA CGM purchase carries.

When the IPO of CEVA was announced, I argued that its enterprise value (EV) could, theoretically, hover between $4bn and $5.2bn, with the low/mid end of that range offering good value. Based on the price range agreed by the parties, the implied equity value of the freight forwarder and contract logistics firm is up to $1.85bn ($463m x 4), while its EV comes in at $4bn on a pro forma basis – this was confirmed by the IPO release. After proceeds are used to pay down the debt, the implied EV of a listed CEVA will fall by the amount sought, which currently stands at Sfr1.2bn, but was slightly higher before launch.

It is also possible that, in terms of price, when the books close, institutional and retail investors will be just as lucky as CMA CGM, which nonetheless is shelling out almost half a billion dollars to have its name on the shareholder register.

The IPO was launched today, and uncertainty surrounding its final pricing on the SIX Swiss Exchange is surely reflected in the guidance, given a wide range of between Sfr27.5 and Sfr52.5 per share.

The primary stock offering and the concurrent private placement are mutually conditional, CEVA said, adding that one of the deal’s possible highlights would be an “implied market capitalisation of between approximately Sfr1.5bin and Sfr1.8bn (pre over-allotment option)”.

Smart moves

The start of trading on the SIX Swiss Exchange for the CEVA ticker “is anticipated” to be 4 May.

This is an incredible twist for CEVA, particularly if we think what kind of situation its current managers found themselves in when they joined the debt-burdened freight and contract logistics operator. Yet it is all even more remarkable for the French carrier, whose annual results clearly warned its rivals they would do well to take its corporate actions very seriously.

Last week, The Loadstar reported that, “as container spot rates on the Asia-North Europe trade continue to slide, CMA CGM has announced a reduction in FAK rates”, adding that “next month, the French carrier will charge $850 per 20ft and $1,600 per 40ft from $900 and $1,700, and other carriers are expected to follow as they scramble to fill ships. With demand remaining weak post-Chinese new year, several forwarders (…) have been offered rate discounts in the past two weeks to switch carrier”.

In the past year or so, CMA CGM has arguably proved to be run by some of the smartest individuals in container shipping circles, not only because its acquisition-led strategy has proved to be truly transformational, with the consolidation of Singapore firm NOL and its troubled container shipping arm APL, but also because the purchase of a large stake in a major freight forwarder with truly global appeal could give it a completely different slant, ahead of its own (oft-rumoured) IPO.

COMMENTS 2


Leave a Reply

  • Alan

    April 24, 2018 at 7:04 am

    But by having CMA as a large shareholder, you remove the chance that trade buyers will eventually bid for CEVA, so you remove the chance that it’s new other shareholders will ever receive a takeover premium. CMA acquire effective control, without paying a premium

    Reply
    • a.pasetti@yahoo.co.uk

      April 25, 2018 at 1:53 am

      That is true, Alan. There’s no/ M&A premium priced-in at IPO, in fact. This remains a working capital story, one with a much-stronger BS than pre-IPO.

      Reply