Deutsche Post AG, faced with the loss of its monopoly on German mail delivery, agreed to buy the UK's Exel Plc for £3.7 billion (US$6.7 billion) in cash and stock to be able to manage supply chains for customers around the world.
Deutsche Post, Europe's biggest postal service, will pay £1.244 per Exel share, Chief Executive Officer Klaus Zumwinkel company said yesterday on a conference call. That's 24 percent more than on Sept. 1, when the companies first said they were in talks.
Zumwinkel's biggest acquisition gives the former state-owned monopoly more of Europe's US$51 billion market for contract logistics as well as operations in the US and Asia. Berkshire, England-based Exel employs 111,000 people and generated sales of US$11.4 billion last year.
"It's a very good strategic fit for Deutsche Post," said Klaus Kaldemorgen, who manages 7 billion euros (US$8.5 billion) including Deutsche Post shares as head of equities at DWS Investment GmbH in Frankfurt. "It will make the company a competitive force in the fast growing market for logistics."
About 72 percent of the price will be paid in cash, with the rest in new Deutsche Post shares, the Bonn-based company said. Exel chief executive John Allan, 57, will run the company's combined logistics unit, which will be based in the UK.
UBS AG and Merrill Lynch are advising Exel. Morgan Stanley is advising Deutsche Post, which has spent more than US$13 billion on acquisitions since 1996. Zumwinkel, 61, is adding package-handling and supply-chain management services to prepare for the loss of Deutsche Post's monopoly on German mail delivery in two years.
Shares of Deutsche Post fell US$0.57, or 2.9 percent, to 19.41 euros in Frankfurt as of 8:22am. Exel stock rose £0.10, or 0.8 percent, to £1.238 in London, bringing its gain this year to 71 percent, including a 17 percent jump on the day the talks were announced.
"Customers are increasingly demanding sophisticated, integrated global solutions," Zumwinkel said on a conference call with journalists. "This will make Deutsche Post the world's biggest logistics company."
Deutsche Post will pay £9 in cash and will issue about 79 million new shares. The company said the acquisition will generate pretax savings of about 220 million euros by 2008.
Allan, who has run Exel since 2000, has used acquisitions to turn Exel into the biggest provider in European contract logistics, according to a report by Transport Intelligence, a research organization.
"I'm pleased to take on the challenge of bringing together two very good businesses," Allan said on the call.
Contract logistics involves managing warehouses and inventories for customers as well as transporting their manufactured goods and raw materials over land.
Exel had profit of £171.9 million on sales of £3.64 billion in the first half. The company generates about a third of revenue in the UK, 30 percent in the US, 16 percent in Asia and the rest in Europe, the Middle East and Africa, according to its Web site.
Before today, Zumwinkel's biggest buy was the US$2.9 billion purchase of DHL Express in 2002. The former McKinsey & Co executive also spent US$1.05 billion in March 2003 on Airborne Inc's ground operations to gain a delivery network in the US.
The acquisitions haven't yet added to profit. The US unit of DHL lost 495 million euros (US$601 million) last year and isn't expected to break even until the last quarter of next year. Profit at Deutsche Post last year rose to 1.59 billion euros from 1.3 billion euros a year earlier, on sales of 43.2 billion euros.