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The first signs of a shareholder revolt appeared at US forwarder UTi Worldwide yesterday over its board’s recommendation to accept the purchase offer from Danish 3PL DSV.

DSV tabled a $1.35bn offer for UTi on 9 October, offering long-suffering investors the chance to exit the company at a price of $7.10 per share – an offer one advisory company acting on behalf of UTi shareholders yesterday described as “paltry” and called on them to reject the bid.

Sterling Capital Management yesterday filed a Schedule 13D form with the US Securities and Exchange Commission (SEC), which it is obliged to do if it has a shareholding greater than 5%.

“In our opinion, UTI shareholders should vote against such a low offer and encourage DSV among other strategic players to consider an offer that places a reasonable control premium for this top-20 global logistics player, Sterling MD Brian Moran wrote in the filing.

In a letter to UTi chairman Roger MacFarlane, Sterling’s senior ND Eduardo Brea argued that after years of investment UTi now had a “gold plated” IT platform; had almost completely overhauled its executive management team; and was once again winning new business, all of which would raise its valuation above the DSV offer.

He wrote: “As longtime shareholders, however, we believe that DSV’s of $7.10/share grossly undervalues UTI Worldwide. After seven years of substantial investments, capital raises and management turnover, we were led to believe that we were in the ninth innings of a turnaround at the company.”

Last week, reaction from investment analysts contacted by The Loadstar suggested that the acquisition price might be on the high side, with one suggesting it was a “hefty price, given current operating outlook”, but Mr Brea argued that the DSV offer effectively undervalued UTi by 50% compared with other recent high-profile takeovers of logistics companies.

“With modest additional sales momentum, UTI has the capability to return to adjusted EBITDA levels above $200m. The company was able to generate such a level in 2007, 2008, and 2012 at sales levels not too dissimilar to current trends. Using a “more normal” $200m EBITDA threshold values, the current DSV offer at a paltry 6.75x EBITDA or almost a 50% discount to offers for other logistics players,” he wrote.

Kintetsu’s recent $1.2bn acquisition of APL Logistics was valued at 15x EBITDA; Japan Post’s $5.1bn takeover of Toll was 13x EBITDA; UPS’s acquisition of Coyote Logistics was 18x; while Echo Global Logistics, CH Robinson and XPO Logistics all paid 11x EBITDA for Command Transportation, Freightquote and Pacer, respectively.

“DSV’s offer, in short, substantially undervalues UTI Worldwide. Furthermore, DSV comments on its conference call that it believes it can achieve meaningful margin improvement from UTI in just a couple of years as well as the increase in DSV’s market capitalisation north of $500 million since the announcement attest to this.

“This is not the outcome that places a reasonable private market value on UTI Worldwide for its owners. We intend to vote against the transaction,” Mr Brea concluded.

In December last year, DSV admitted that informal discussions had failed to agree a valuation, and announcing the $1.35bn offer earlier this month, DSV chief financial officer Jens Lund said of the failed approach: “We had some preliminary discussions and, based on these, we didn’t find it relevant to proceed. But it is clear that there have been some changes in the performance of UTi and now there is a good match between what we buy and what we pay.”

The filing revealed that advisory clients of Sterling had deployed around $43.7m in purchasing UTi shares.

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  • Robert Jervis

    October 22, 2015 at 2:38 pm

    Dear Gav

    Presumably, Sterling Capital Management differs from the rest of the investment community in thinking UTi undervalued – otherwise other investors would have been piling in? I thought many had baled?

    Or maybe Sterling should have acquired a larger stake?

    Brian Moran is understandably doing nothing more than his job in trying to get the price up – but that doesn’t mean he’s correct.

    As is usual – the only price that matters is the one that both buyer and seller agree upon

    Yours aye


    • Gavin van Marle

      October 22, 2015 at 5:33 pm

      Indeed – I had a long conversation this morning with an analyst about this morning. UTi’s share prices has a wide spread over the past 12 months, and given that this is a long-term investor would likely have paid much more than $7.10 a share. It’s defending its clients’ position

  • Ale Pasetti

    October 22, 2015 at 5:29 pm

    A back-of-the-evelope calculation suggests that Sterling is under water with its UTi investment. Hence, their call to reject the offer. I wouldn’t worry too much though, and DSV can surely offer a higher premium, but I doubt it’ll go any higher than $7.70 a share.

  • Nick Coverdale

    October 22, 2015 at 10:10 pm

    “Golden IT platform ” – does anyone think that DSV doesn’t have a perfectly good IT system, that it would be a major consideration in the purchase. Absolutely not, the bottom line is what matters and what the purchase brings to the buyer.

    DSV is one of the few freight forwarding companies I admire, it will pay what it is worth to them (DSV), not some investor’s dreamed up calculation.