King Chess Pieces With Mergers And Acquisitions Text

In a note released yesterday to investors, UBS analysts said that they had revisited their past work (read this) from earlier this year) on a merely “hypothetical tie-up” between DHL Group and compatriot DB Schenker (DBS).

“We run a sensitivity analysis based on different acquisition prices and DBS EBIT post-synergies to determine potential implications on earnings accretion, ROCE, and net debt/EBITDA levels for DHL Group. We believe there are lower synergies in a DHL DBS tie up, vs a DSV DBS tie up and therefore we allocate a lower probability for a potential DHL DBS tie up. Nevertheless, if a tie up materialises it would represent a risk to our Buy rating for DHL (PT, €51/sh) as we expect the initial investor reaction to a deal may be negative. Most of our scenarios assuming a valuation above €17bn result in EPS dilution.”

The broker added that it believes “the customer overlap between DHL and DBS could be meaningful, resulting in high de-synergies. We also believe that DSV could achieve a higher level of post-synergies EBIT for DBS, judging by the historical EBIT margin premium it had achieved vs. DHL FF and peers. To put this in context we calculate that each 100bps higher EBIT margin for DBS post synergies is equal to around €160m of incremental EBIT per year”.

“Using a 15x EV/EBIT multiple seen in past transactions would equate to c. €2.4bn higher price that DSV would be able to pay. Lastly we note that a potential tie up with DSV does not necessary have to result in significant DBS layoffs considering: i) high natural employee churn in freight forwarding of ~15%; limited workforce rationalisation at DSV over the last year despite the weak air & ocean volumes,” UBS concluded. 

The full research note is here.

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