Moody's: Schenker acquisition 'offers strong strategic rationale but bears significant execution risk'

Stockholm, September 16, 2024 — Moody’s Ratings (Moody’s) says on September 13, 2024, Danish logistics company DSV A/S (A3 stable) announced that it had signed an agreement with Deutsche Bahn AG to acquire 100% of its logistics subsidiary, Schenker AG, for an enterprise value of €14.3 billion and an equity value of €11.3 billion. The transaction is subject to approval by the Supervisory Board of Deutsche Bahn and the German Federal Ministry for Digital and Transport. At this stage, DSV’s A3 rating is not expected to be affected by the transaction which will be financed with at least €4.0 billion of equity.

We see strong benefits to DSV’s business profile by adding Schenker’s extensive European coverage to its offering, especially in road transport where it holds the largest market share. The greatest potential, however, lies in DSV’s ability to structurally lift Schenker’s profitability towards its own industry-leading level, particularly in Air & Sea freight forwarding. Although the acquisition will be the largest and likely the most complex in DSV’s history, the company has a strong track record of increasing productivity and efficiency in acquired companies by extracting both cost savings and revenue synergies. This was evident with Panalpina in 2019 (revenue of €5.5 billion) and Agility in 2021 (revenue of €3.6 billion). We however acknowledge that Schenker is considerably larger with revenue of €18.4 billion (on a twelve month basis as of June 30, 2024)

We note positively that DSV aims to elevate the operating margin of the combined entity to at least DSV’s current levels within the respective business areas by the third year after the transaction closes. However, this is a challenging task considering DSV’s EBIT margin is almost twice as large as Schenker’s – 10.6% vs. 5.5% respectively for the last twelve months ending June 30, 2024.

We see material risks in terms of execution and realization of expected synergies, particularly due to the social commitments made to Schenker’s German employees, which will be in effect for two years after closing. The operational risks should also be considered in relation to the substantial debt load that DSV will incur to finance the acquisition, estimated to be around €6.0 to €7.0 billion depending on the amount of equity raised. This will increase the company’s Moody’s-adjusted debt/EBITDA ratio to at least above 3.0x pro forma for the transaction, up from 1.9x as of December 2023. However we welcome DSV’s decision to (i) equity finance €4 billion to €5 billion of the purchase consideration; (ii) terminate its current DKK1.5 billion (€200 million) share buyback programme and (iii) reiterate its commitment to maintaining its credit ratings.  The A3 rating of DSV remains contingent upon the maintenance of a conservative financial policy with a net leverage ratio of below 2.0x as per the company’s own policy.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the issuer/deal page on https://ratings.moodys.com for the most updated credit rating action information and rating history.

Daniel Harlid
VP – Senior Credit Officer
Corporate Finance Group
Moody’s Investors Service (Nordics) AB
Norrlandsgatan 20
Stockholm, 111 43
Sweden
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Stanislas Duquesnoy
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody’s Investors Service (Nordics) AB
Norrlandsgatan 20
Stockholm, 111 43
Sweden
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454