News / Deutsche Post ponders sale of DHL Global Forwarding, with Japan Post the likely buyer

12/02/2016

Deutsche Post DHL is considering spinning-off part of its forwarding business, with Japan Post being touted as the most likely buyer.

Reuters reports that the German behemoth is eyeing a sale of its troubled DHL Global Forwarding unit. A source told The Loadstar that DHL Freight, part of DGF, would be the target for Japan Post, and noted that “it is almost a done deal. I estimate the acquisition price will range between $4bn and $5bn.”

At that price, however, it would seem likely that it would involve the entire DGF unit.

“It is a rich valuation, but is not prohibitive, particularly given that Japanese companies tend to overpay in mergers and acquisitions. At $5bn, DHL Global Forwarding, which has paltry margins, would be valued at about 0.33x sales and 15x EBIT, assuming sales and EBIT have not changed much year-on-year,” said The Loadstar’s financial analyst, Alessandro Pasetti. At the end of 2014, he argued for a break up of DHL’s vast business.

“A $4bn price tag would make even more sense, based on fundamentals.”

The larger question perhaps should be directed at Japan Post, which last year bought Australia’s Toll Group for a staggering US$5.1bn. Acquisition of DGF, the world’s largest freight forwarder, would make the Toll buy – a company not even in the top 20 global forwarders – appear overvalued.

One senior European freight forwarder told The Loadstar: “It’s an interesting one; but I do not believe Japan Post would first spend a fortune on Toll, and subsequently make an acquisition which would make the former purchase obsolete – Toll’s courier/express business is not that bright any more.

“I also wonder whether the German government would allow this to happen, since it would mean a lot of job losses, and the cost for the other DHL companies would increase dramatically since you would have a lot less heads to share overheads, which are substantial.

“However, it is obviously time to make such moves as there are not many companies out there that can still be bought or merged.”

Last year’s freight forwarding report by Transport Intelligence noted that “acquisition of freight forwarders is very attractive for companies, in that forwarders already have in place global networks. In particular, the forwarding market is especially attractive to logistics players which have developed from a domestic or regional focus.”

It also noted that companies such as Japan Post and XPO were shaking up the traditional forwarding market.

DHL Global Forwarding has had its troubles. Last year it was forced into a €345m writedown as it abandoned its IT system, New Forwarding Environment, saying it had been “overwhelmed”. The NFE fiasco led to the resignation of CEO Roger Crook and the departure of other high-level executives. The business saw a 39% fall in profit to €293m.

According to WorldACD data out today, DGF is the largest air freight forwarder, but last year saw its growth lag behind the worldwide average of 2%.

Transport Intelligence noted: “DHL Global Forwarding continues to hold a major share in the fragmented freight forwarding market, with an estimated 8.4%. It is also considered the largest air freight forwarder, with a share of around 7.8%.”

In the freight business unit, revenue rose by 0.5% to €3.1bn in the first nine months of 2015, bolstered by positive currency effects of €7m. The company reported that business had grown primarily in Germany, Central and Eastern Europe, Turkey and Denmark.

“Under strong margin pressure, gross profit was €811 million, thereby remaining at the prior-year level, assisted in part by positive currency effects,” the company said.