Morningstar | Narrow-Moat DSV Tries to Reel in Big Fish Panalpina
Narrow-moat DSV announced a bid on Jan. 16 for transport peer Panalpina in a mixed cash and share offering, two thirds shares and one third cash. This represents a premium of almost 25% to the Jan. 15 closing price. The Panalpina board has commented only to acknowledge the offer, but we believe that the premium and structure of the offer may be enough to entice the company to accept. However, the resulting share price move for Panalpina slightly above the offer price would suggest that investors believe DSV may improve the offer slightly in order to get it over the line. We will not be altering our forecasts nor our DKK 440 fair value estimate at this early stage of the process and believe DSV shares are currently fairly valued.Since the successful integration of basket case UTi following its acquisition three years ago, DSV shareholders have been holding out for (and pricing in) the next big deal. Panalpina is just under half the size of DSV in terms of market capitalisation, and its already solid operating model means that the upside from an integration perspective will not provide the same level of synergies as UTi, for which DSV paid a bargain-basement price and managed quickly to bring the profitability of the acquired entity in line with the parent company. Where the acquisition of Panalpina does create value is in adding significant bulk to DSV’s most profitable operations, particularly in air freight, where Panalpina handles around 50% more tonnage. The combination would move the company to number two globally in air freight and number three globally in sea freight.
With Panalpina trading on a forward price/earnings ratio of almost 30 times, this deal can certainly not be considered cheap; however, with two thirds of the bid in the form of DSV shares, this is somewhat mitigated. In the meantime, we await further updates on the offer.
DSV is engaged in the provision of transport and logistics solutions. As of Dec 31 2014, Co.'s operations comprised of three business areas. The DSV Air and Sea business provides air and sea freight services and designs project solutions. The DSV Road business provides road and rail transport services including full loads, part loads and groupage. The DSV Solutions business area specializes in contract logistics, which include logistic and warehousing solutions, as well as freight management, custom clearance, order management and e-commerce solutions.
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