DSV to acquire Panalpina for $4.6 billion, create a top 5 global 3PL

The many moving parts that have been part of the interactions in recent months between Basel, Switzerland-based global 3PL and airfreight forwarder Panalpina by Hedehusene, Denmark-based global 3PL DSV, in regards to the latter’s pursuit of the former as an acquisition target, have taken yet another turn, with the companies announcing today that they are going to merge.

DSV will buy Panalpina for $4.6 billion, according to a joint statement issued by the companies. And once the deal is made official, DSV and Panalpina will become of the world’s largest transportation and logistics services providers with a combined pro forma revenue of more than $17 billion and more than 60,000 employees. The acquisition was recommended by Panalpina’s board of directors and is supported by nearly 70% of the company’s shareholder, which includes the largest Panalpina shareholder, the Ernst Gohner Foundation. The Ernst Gohner Foundation holds 46% of Panalpina stock and is expected to become the largest shareholder of DSV, at around 11% of the issued share capital.

The companies said that upon completion of the deal, an integration committee with both Panalpina and DSV representatives will be “established to oversee the integration process and ensure a fair treatment of all employees,” and that DSV will propose to its shareholders to change the company’s name to DSV Panalpina A/S.

“A combination of DSV and Panalpina further strengthens our position as a leading global freight forwarding company, said Kurt Larsen, chairman of the Board of DSV. “Together, we can present a strong global network and enhanced service offering to our clients, further solidifying our competitive edge in the industry. It is a great match on all parameters. Panalpina is a great company and we’re very excited by this possibility to join forces and to welcome Panalpina’s talented staff.”

DSV officials said that this deal is expected to boost the company’s annual revenue by around 50%, making the combined entity a top four global 3PL for revenue, with operations in more than 90 countries.

And they cited scale as a main competitive advantage, too, that will result in various competitive advantages, including:

• the Air & Sea division will move a combined 3 million TEU (Twenty-Foot Equivalent Units) and more than 1.5 million tons of airfreight annually;
• gains in contract logistics, driven by Panalpina’s more than 500,000 square-meters of warehousing capabilities;
• DSV’s road network being a strong addition to Panalpina’s existing service offering;
• an increase in DSV’s exposure to APAC and the Americas and further balancing DSVs geographical footprint; and
• they pointed to various potential synergies along the lines of unique customer relationships and vertical expertise, operational excellence and efficiency DNA, commercial synergies and cross-selling opportunities from stronger network and service offerings, new competencies and skills, and the consolidation of operations, administration and logistics facilities, and consolidation of IT infrastructure

While this deal has gotten to this point, it was not evident that was a given, at various times in recent months.

On February 4, Panalpina said that the Ernst Göhner Foundation, the company’s largest shareholder representing approximately 46% of the total share capital, told the Panalpina Board of Directors it did not support DSV’s previous acquisition offer, of more than $4 billion, to acquire the company, adding that it supported Panalpina’s Board of Directors in pursuing an independent growth strategy that includes M&A.

That was soon followed by DSV upping its offer by $10 per share in an all-cash offer to Panalpina shareholders. DSV said that this offer was made “in response to feedback received from Panalpina and included e.g. certain commitments to be specified towards Panalpina’s employees and the Panalpina heritage.”

And in January DSV confirmed that it made “an indicative and private proposal” to the board of directors of Panalpina for more than $4 billion, which was comprised of cash and DSV shares. DSV said at that time that it made these comments in response to Panalpina’s January 16 announcement that it received an unsolicited, non-binding proposal from DSV to acquire the company.

DSV had also acknowledged that a combination of DSV and Panalpina would have created a leading global transport and logistics company with significant growth opportunities and potential for value creation, adding that a combination presents a unique opportunity for both companies and their respective stakeholders including shareholders, employees, customers and suppliers.

Thomas Cullen, analyst at London-based Transport Intelligence, wrote in a research note that the prospects of the new company are also likely to be better than that of Panalpina, and is possibly the most attractive logistics service provider in the world.

“There are risks in this deal,” he noted. “The success of DSV in the merger of its previous acquisitions has been facilitated by the clarity of its management structure. With significant Panalpina influence in the new, merged company there is a possibility that this will be diluted. None-the-less DSV-Panalpina will be an important logistics service provider in the global market. DSV states that it will probably be the second largest air freight forwarder in the world and the fourth largest sea freight forwarder. However, the new company is rather heavily exposed to European markets and is also dominated by freight forwarding with contract logistics being just 14% of sales. The challenge now is for the new merged company to deliver the sort of integration performance that DSV’s management has delivered in the past.”

And Evan Armstrong, president of supply chain consultancy Armstrong & Associates, said that the merger will advance DSV/Panlalpina to the fourth largest global 3PL based upon his firm's 2018 top 50 global 3PL list and will provide DSV/Panalpina with more opportunities to cross sell integrated solutions and drive better buy-side purchasing power with carriers from its greatly expanded freight forwarding volumes.

“Panalpina is the fourth largest air freight forwarder and DSV is the tenth largest; combined, they would have over 1.6M metric tons of air freight under management making them the second largest air freight forwarder,” he said. “In terms of ocean TEU, Panalpina and DSV are ranked fifth and sixth respectively, the combined operation would bring them to 2.9M TEUs pushing them into fourth place just behind DHL SC & GF. Panalpina’s operations will benefit from upgrading to DSV’s I.T. platform and becoming part of its solid corporate culture.”