Ceva Logistics has a new king
European FVL power
Relations between CEVA’s shareholder, Apollo Global Management, and the logistics company’s staff have been dealt a severe blow after an equity share scheme saw many employees lose their investments.
In April, CIL Ltd, formerly known as CEVA Investments Ltd, petitioned for liquidation in the Cayman Islands, shortly before CEVA announced a financial restructure. The shares in CIL, which were owned by CEVA and former TNT and EGL staff, as well as other investors, lost all value upon liquidation.
A small group of participants in the equity scheme are now being represented by a Cayman Islands law firm in the liquidation proceedings, and are claiming that the company should not have been put into liquidation. One institutional investor, Cyrus Capital Partners, is also involved in legal action concerning CIL Ltd in New York and the Cayman Islands.
The Loadstar has spoken to many of CEVA’s staff who became involved in the scheme, which was launched when Apollo took over TNT’s logistics division in 2006. One former TNT staffer who was involved very early in the scheme, said: “Apollo made it clear that the acquisition [of TNT] was conditional on the equity scheme being accepted by all senior executives. Apollo’s senior partners incentivised us with the ‘promise’ of ‘very significant returns’ on any investment.”
Several former staff told The Loadstar they had felt “press-ganged” into putting “skin in the game”. One senior manager who recently left CEVA explained: “Many investors were employees who lost a lot of their savings. People didn’t understand the nature of the investment and how risky it was. The questionable thing is whether people were essentially forced to pay to play.”
One source claimed that as late as at the end of last year, when it was becoming clear that CEVA would need to restructure its finances, new employees were still being asked to pay into the share-buying scheme, although this has not been confirmed by The Loadster.
Another former employee said: “What has upset most people is the amount invested by hundreds of employees, which we think totals between $10m and $15m.
“It appears that a private equity company, that was sitting on billions in funds, could have watched the employees of one of its companies lose $10m, before creating a new company with less debt – but there are still very high levels of debt. I believe it was irresponsible – some people had felt it necessary to take out loans or a second mortgage on their house.”
One source said that, on average, managers invested between €10,000 and €70,000, some senior directors put in around €130,000 and a few put in up to €400,000.
Marvin Schlanger, the CEO of CEVA, who has worked with Apollo companies for many years, told The Loadstar that the share scheme had foundered as a result of the financial crisis.
He said: “At the time of the acquisition of TNT, people were given the opportunity to invest – and many of them did. Unfortunately, the world between 2009 and 2012 turned out to be harsher than anyone projected.
“The company was put in the position of having to restructure. The initial equity was then included. Apollo, the executive board, me, the management – we all lost our equity. We recognise that’s very unfortunate, and something that doesn’t make anyone happy.”
But, he added, the company had tried to make amends.
“To recover from that, we have given people the opportunity to participate in a new equity plan. If the company performs, they can earn as much or more than their initial investment. We think we’ve treated everyone fairly.”
The new scheme was started at the time of the recapitalisation, and Mr Schlanger said it was no different from the original plan. However, some staff deny that the new plan represents much of an opportunity.
“I know someone who invested around €30,000,” said one source. “It was later valued at €15,000 and he now has just 60% of that in the new scheme, around €9,000. That is a substantial loss, and is based on a future sale.” Similar stories have been brought to The Loadstar’s attention.
Sources at CEVA say that many staff have left or are considering leaving the company. One said: “CEVA has already lost a lot of experience – people are extremely pissed off about the scheme, and very committed people are resigning.”
There is also an allegation that some senior executives had considered launching a class action lawsuit, but had felt under pressure not to. Mr Schlanger said he was not aware of any potential legal action.
The liquidators are thought to be looking at the sequence of events of CIL’s liquidation, and the behaviour of the directors of CIL, after the bankruptcy notification was filed without consultation with all the shareholders.
A new holding company has been created while the liquidation process is ongoing. While the investors said they believed there was little likelihood of their money being recovered, the liquidators have not ruled out legal proceedings over actions taken relating to CIL’s insolvency. It is believed the liquidators will come to a decision in September.
“I’m not necessarily hoping to get money out of Apollo,” said one source. “I’m just disappointed and saddened by the destruction of the value and success of an organisation with a tremendous workforce. It has severely undermined its credibility in 3PL circles – and it’s done that in just half a dozen years.
“We thought TNT/CEVA Logistics was really going places. We were so excited. We had the opportunity to grow and build the business into something even more successful. I believe Apollo destroyed all that.”
Apollo, which reported a net income of $198m in the second quarter of this year, and had $1.2bn in cash and cash equivalents as of June 30, declined to comment.