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Exel bid ref leds nature of a predatory market
Page 28
Page 29
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Exelis E328m bid for Tibbett & Britten could lead to a boom in acquisitions in the logistics market. The CM news team reports.
Exel's bid for rival Tibbett & Britten came as no great surprise; as recently as 1999 John Allan,cun-ent chief executive of Exel, was bidding for the firm, but that offer was turned down.
Five years later the potential benefits of a takeover remain valid; combining Exel's f 4.9bn freight management and contract logistics departments with T&B's contract logistics division would create a £6.7bn global business with 110.000 employees.
The acquisition would also enable Exel to make cost savings of around 15-20m by combining their operations and would extend its reach in the UK and in Eastern Europe T&B has a number of operations in these strong growth markets. It would also strengthen its position in North America, Asia-Pacific and the non-food retailing sector.
As Allan puts it: -Exel has done something in one step which would have taken a dozen small acquisitions."
John Manners-Bell, chief analyst at Transport Intelligence, says this would be a great acquisition for Exel as it would give it a bigger presence in the UK, enabling it to challenge the power of retailers and manufacturers and to reverse some of the price pressures that have forced down margins in recent years. The firms also have a good cultural fit, he adds, which would help them integrate. But he warns that the deal is not signed and sealed and another bidder might yet enter the race: -T&B's share price has climbed since it made the offer so it seems likely that another company could play its trump card. Deutsche Post would be at the forefront of bidders, but it says it sees the deal as done."
Deutsche Post might bid
" however, seeing how these acquisitions work there is a chance that it will come up with a bid as the UK is a white spot for it. It has Securicor Omega here but this acquisition would put it within the top three logistics companies in the UK as well as giving it operations in the US," he adds.
Tom Mills, logistics analyst at Datamonitor. believes Exel's move could be in response,directly or indirectly, to the aggressive acquisition strategies of its rivals: Deutsche Post, which acquired Securicor Omega Holdings in March last year (CM 27 March 2003) and TPG. the Dutch postal group, which owns TNT.
Mills believes this kind of activ ity reflects the need for large players to increase their scale, service range and geographical scope to compete for the biggest contracts. For example, he cites Wincanton's purchase of P&O TransEuropean which served as a gateway for operations in mainland Europe.
He explains: The major players achieve this growth through acquisition, which promotes both a desire to keep up with each other in terms of size, and an urgency to acquire good, suitable mid-sized players before rivals snap them up. "Exel is not just gaining in size through the acquisition, but also in terms of geographical expansion and exposure to different markets."
Deal might trigger buyouts
He believes that this acquisition might also trigger further buyouts, with mid-sized companies as the primary targets.
Christian Salvesen in the UK has resisted several takeover bids in recent years, but its well publicised difficulties leave it vulnerable to predatory rivals. TDG, another mid-size logistics player, is also seen as a target.
-An acquisition of this size will always grab the attention of rival players," he remarks. "And it will put a certain amount of pressure on them to respond, which would suggest that more mergers and acquisitions activity could be on the way.
-The acquisitive players like TPG and Deutsche Post are continually looking to plug gaps in their European networks and position themselves as global logistics providers," he adds."So we can expect them to continue to be on the lookout for acquisition opportunities in Europe and beyond. Generally the largest players will continue to get bigger and acquisitions will provide much of this growth."
Exel's competitors remain remarkably sanguine about the takeover. A spokesman for Wincanton says that while it removes one competitor from the market pl ace, it makes Exel larger.
However, he adds: "Whether it makes them more powerful remains to be seen. Exel is already a pretty big company as it is." He also predicts further consolidation in the sector.
And a Christian Salvesen spokeswoman says: "While this is a significant development for the logistics marketplace, Christian Salvesen is solely focused on delivering against its own strategy to generate future growth and add value for its customers." •