DSV’s offer for UTI: Too much or too little?

For the second time in the last 12 months, Danish logistics group, DSV, has made a bid to acquire U.S.-based UTi Worldwide. This time, the offer was accepted, for US$1.35 billion, or $7.10 per share, representing a 50 percent premium to UTi’s closing trading price on Oct. 8.

At first, the immediate reaction was surprise that DSV would pay such a premium for a company with a long history of financial problems. However, according to Reuters, activist U.S. law firms are taking the opposite view, suggesting that UTi sold too cheap. San Diego-based law firm Johnson and Weaver said it is investigating whether the deal represents adequate consideration, because one Wall Street analyst valued UTi’s stock at $14 per share.

Additionally, Weiss Law is investigating whether UTi’s board acted to maximize shareholder value prior to entering into the agreement. Analysts set a target price of $13 per UTi share, or approximately $6 above the offer price. UTi’s shares traded at $10.25, or 44 percent above the offer price, as recently as June 24 this year.

DSV, however, disputes this claim. DSV CFO Jens Lund said: “We paid a 50 percent premium on the closing price the day before, and a premium of approximately 34 percent compared to the 30-day, volume-weighted average closing price. Given the recent fall in share prices, this is not excessive.”

The transaction has been unanimously approved by both UTi and DSV’s boards of directors, but not yet by UTi shareholders. Sources reported that P2 Capital Partners, UTi’s largest shareholder, which owns 11.8 percent, supports the transaction.

UTi has been hemorrhaging money for years. For the fiscal year ended Jan. 31, 2014, UTi reported a net loss of $78.1 million, and things only got worse in its most recent full fiscal year, when the loss increased to $202.6 million. A major restructuring last year, including a long delayed and costly IT system upgrade, racked up $25.2 million in expenses, compared with $10.6 million in expenses a year earlier. DSV, on the other hand, has a long record of profitability and reported net income of US$229 million in its most recent fiscal year.

UTi has 21,000 employees in 58 countries, but if the deal is approved, the new combined DSV/UTi workforce will number 44,000 people in 84 countries. This acquisition in expected to increase DSV’s annual revenue by approximately 50 percent, creating one of the world’s strongest transport and logistics networks. A combined DSV/UTi would become the fourth-largest global 3PL behind DHL, Kuehne + Nagel and DB Schenker, in terms of revenue, with annual revenue estimated at $12.9 billion, and the seventh-largest airfreight forwarder, with a projected 600,000 tonnes of cargo transported.

DSV, founded by a group of 10 truckers in 1976, has been growing its business through previous acquisitions, including Frans Maas, ABX Logistics and DFDS Transport. DSV’s Lund said that the group would like to continue that tradition by expanding in the United States is a big draw. He said DSV has also been keen to expand its freight forwarding network and gain road capabilities in the Americas.

Kurt K. Larsen, DSV’s chairman of the board, said the combined force will now have a more balanced geographic foothold, with 61 percent of its revenue coming from business in Europe, the Middle East and North Africa (EMEA); 17 percent in the Americas; 16 percent in Asia; and 6 percent in the sub-Saharan African region.

UTi told Air Cargo World that it had nothing to add about the transaction at this time. However, Roger MacFarlane, chairman of UTi’s board, said in a statement that, “We are operating in an industry where increasingly scale is critical. Joining forces with DSV delivers substantially greater client value and many future opportunities for our people, while it is financially very attractive for our shareholders.”

Did UTi’s board act in the best interest of UTi public shareholders? That remains to be seen. The transaction is also pending approval of relevant regulatory agencies, with an expected closing date sometime in the first quarter of 2016. So far, DSV’s CEO Jens Bjorn Andersen said he had no intention to raise the offer. But maybe this isn’t quite a “done deal.”