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Following its last three major acquisitions – UTi, Panalpina and Agility – DSV dismissed around 45% of the new employees as the businesses were integrated – a strategy which could stymie its potential acquisition of Deutsche Bahn-owned DB Schenker, according to analysis by Bernstein.

“DSV is the logical buyer of DB Schenker; it is worth the most to them, and they should be able to pay the most for it. Execution risk is limited, with a longstanding top team that have mastered integration,” noted Tobias Fromme, senior research associate at the company.

“However, investors cannot yet bank on a deal. German politicians may resist a sale to a company that typically sheds 45% of the increase in headcount in the 18 months post-deal. And there remains an outside chance that DHL, or private money, overbids. A DSV acquisition is our base case, but not certain.”

A senior DSV executive told The Loadstar the company contested the 45% redundancy rate, but asked for the correct figure, the executive replied: “We don’t disclose (it), but the whole premise of the piece [Bernstein’s analysis] is wrong.

“You can’t focus on the FTE [full-time employee] development in Air & Sea in isolation. The companies we acquire do not have the same divisional structure as DSV. We therefore onboard business units in the divisions we think they belong to, and relocate them between the divisions, as we learn more about the services in the respective business units.

“For example, in 2016 where we acquired UTi [closing January 2016], the development in FTE across the entire company was +4%.

“In addition, the piece does not factor in the significant Covid-related cost-saving initiative announced with the Q1 release 30 April 2020.”

Nonetheless, headcount cuts remain a major strand of Bernstein’s analysis, as it was with recent Loadstar Premium research.

“DSV has consistently pursued transformative deals; businesses about half its size, with profitability well below DSV’s own levels. The potential gains from increasing margins are, therefore, large,” said Bernstein. “Outside of purchased transportation, typically passed through with a lag, the main cost item for any asset-light company, including freight forwarders, is labour.

“Synergy realisation is, therefore, by definition, rapid growth in labour productivity. Within the first 1.5 years after the acquisition, DSV tends to cull around 45% of the jobs that the acquisition added. And this is certainly something that German politicians, who proudly boast the support of the country’s strong labour unions, are wary of.”

It adds: “DSV is an M&A powerhouse and can likely extract the most value from DB Schenker. However, the company’s M&A playbook is notorious for its culling of jobs – a development that neither the German government nor the railway union, EVG – DB Schenker’s biggest union – would be keen to hear.”

In a recent interview with German newspaper Tagesspiegel, Martin Burkert, a member of Germany’s Social Democratic Party and deputy chairman of EVG and DB, observed: “Two things are important to us – the money needs to go directly to DB, and we need an employment guarantee for all DB Schenker workers. Both must be in place.”

DB Schenker employs around around 76,600 people globally.

Bernstein sees French shipping line CMA CGM as the second most likely buyer of DB Schenker. It said” “It has the asset backing to easily afford a large deal, with €30bn in tangible assets (mostly ships), and €9bn net debt (negative financial net debt). It would catapult the company’s Ceva Logistics into the big leagues, similar in scale to the big three of freight forwarding.

“With management keen to grow the asset-light business, we cannot rule them out. However, a recent acquisition of Bolloré may reduce their ability to execute both deals at once.”

As for DHL, it argues that it cannot justify such a high valuation.

“We doubt DHL can secure the same level of ebit from DB Schenker as DSV can. However, this may not be all that matters. First off, shareholders need to agree with this deal, and that cannot be counted on.

“The group is politically well-connected in Germany and can continue to stand as the world’s largest freight forwarder: a standard-bearer for Deutschland AG. Furthermore, Deutsche Bahn may need to be content with a lower bid, as Germany’s state fund, KfW, owns just over 20% of DHL Group. All will turn on what German politicians deem most advantageous. In any case, even if synergies are fewer, Germany gets to keep 20% of them.”

A spokesperson for Deutsche Bahn told The Loadstar it preferred not to comment on the Bernstein analysis.

“In December 2022, Deutsche Bahn’s management board was tasked with exploring options for a potential transaction of DB Schenker. This examination process takes some time.

“No decision has been made yet. Furthermore, there is no specific target date for a decision and the outcome of this exploratory phase is completely open,” the spokesperson explained.

Last year DB Schenker posted annual revenues of €27.6bn and an ebitda of €2.5bn, and according to his year’s Global Freight Forwarding report by Transport Intelligence, was the fourth largest forwarder in terms of overall revenues – it had a 6.7% share of the air freight market, booking just over 1.3m tonnes, and a 4% ocean freight market share, with 1.9m teu.

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