The seemingly marathon race to acquire DB Schenker, the logistics and freight forwarding arm of Germany’s state railways Deutsche Bahn (DB) and one of the leading global players in the space, has been whittled down to just two runners – one of the company’s peers, Denmark’s DSV and Luxembourg-based private equity firm CVC Capital Partners – and the finishing line is now fast-approaching.
What has been dubbed as 'the logistics sale of the 21st century' was first announced in December 2023 – triggered by DB’s quest for capital to finance much-needed work to upgrade its ailing transport network and to reduce its high level of debt.
DSV “The Logical Buyer”?
Earlier this year, business consultant and market analyst, Bernstein, said that DSV was the “the logical buyer” of DB Schenker, having “the highest synergy potential and the lowest execution risk and that the company would be “worth the most to [DSV], and they should be able to pay the most for it”.
DSV and the CVC-led consortium are believed to have each submitted binding bids of approximately €14 billion ($15.51 billion) for DB Schenker.
Bloomberg has reported that CVC and its partners have also tabled an offer of as much as €16 billion ($17.73 billion) that would see the German government re-investing for a roughly 25% stake in DB Schenker, according to people familiar with the matter.
Preserving employment at DB Schenker – it has a workforce of more than 76,000 staff in over 130 countries – has always been a major consideration in the sale process.
German newspaper Der Spiegel recently reported that labor union Ver.di has been campaigning heavily in favor of the CVC bid.
In an internal document, the union calculates that 5,300 jobs could be lost if DSV took the reins at DB Schenker.
“The threat of job losses in the event of a takeover of DSV is immense,” the document noted, a copy of which was sent to Deutsche Bahn’s supervisory board.
“As CVC does not operate a logistics business, no such imminent job losses are to be expected here,” the document added.
But in fact, CVC is present in logistics, acquiring a majority stake in Denmark’s Scan Global Logistics (SGL) in February 2023. It has annual revenue of more than USD3 billion, 150+ locations, across 45 countries and employs more than 3,300 staff.
CVC’s bid for DB Schenker therefore begs the question of whether, if successful, there are plans to forge a merger between it and SGL or perhaps the offloading of the former in the event of the overlap between the two firms being too great.
The Job Factor
Returning to the importance of the ‘jobs factor’ in the takeover of DB Schenker and which could turn out to be the tie-breaker, Bernstein pointed out that German politicians may resist a sale to DSV as it “typically sheds 45% of the increase in headcount in the 18 months post-deal,” adding that “there remains an outside chance that private money overbids.”
According to Reuters, DSV has sweetened its bid by indicating that it wants to invest around €1 billion ($1.11 billion) in DB Schenker within three to five years to make the business more profitable, quoting sources close to the negotiations.
In addition, no individual parts of DB Schenker would be sold on after an acquisition, they said.
DSV and DB Schenker would employ more people in Germany than currently in the medium term, and DSV has made assurances that employment guarantees would be in place for two years after the expected completion of the sale in 2025, the sources added.
Responding to the media report, a spokesperson for DSV said: “We don’t comment on rumors in the market or M&A in general.”
Other Considerations
DSV has been in something of a rough patch for most of 2024. New CEO Jens Lund has had to defend the group’s decision to create a €10 billion joint-venture (JV) in Saudi Arabia for the construction of a futurist, mega-city -NEOM, which has been heavily-criticized given the desert kingdom’s questionable human rights record.
In a statement it rolled out its commitment “to adhering to the ILO Declaration on Fundamental Principles and Rights at Work, the Universal Declaration of Human Rights, the UN Guiding Principles on Business and Human Rights and the Children’s Rights and Business Principles, as established in our Code of Conduct, Supplier Code of Conduct, and our Human Rights Policy.”
It added: “We have worked with NEOM to create JV-specific policies and processes which are aligned with both our approaches and where there is conflict, the stricter standard applies.”
More recently, one of its institutional investors demanded answers after reports that DSV had transported goods through, and to, Russia – despite its pledge not to do so.
The accusations were made even more embarrassing given that in April, DSV complained that its Danish counterpart SGL was using Russia’s rail freight network. CEO Lund had said DSV had taken a “principled stand” in not operating in Russia.
It admitted that “after looking into our shipments, we have unfortunately found that in a few cases, orders have been placed for the transport of cars from China to Russia, and that a subcontractor has transported clothing from Asia to Europe through Russia, in direct violation of DSV’s internal rules and guidelines.
“This is completely unacceptable, and we are investigating the matter with a view to taking the necessary action against personnel…Although there have been breaches of DSV’s internal rules, our investigations show that all international sanctions against Russia have been complied with.”
Failure to land DB Schenker would arguably transform this rough patch into a deep trough.
