Trading on the Singapore stock exchange in the shares of the shipping and logistics group Neptune Orient Lines (NOL) has been suspended today (17/2/2014) as news emerges that it has agreed a sale of its APL Logistics business to Kintetsu World Express. In a press release issued by Kintetsu this morning the purchase price was stated to be US$1.2bn/ JP¥141.6bn.
The sale is hardly a surprise as NOL had indicated towards the end of last year that it was looking to sell the contract logistics provider. However the generous price on a firmly double digit multiple of earnings is a little more unexpected. APL Logistics had revenue of US$1.65bn in 2014, up 5% and EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation) of US$80m, a small rise of US$1m over last year.
Kintetsu had revenue of US$2.8bn and operating profit of US$139m in 2013, with the last three quarters of 2014 seeing a 14% increase in net profit in Yen terms. Buying a company for more a third of it revenue is interesting and would suggest a very ambitious strategy for the Japanese company.
APL Logistics is useful to Kintetsu as it offers not merely a huge expansion in the size of its contract logistics business but also a major change in the nature of that business. At present, despite a useful business in China, India and other Asian markets that contributes over a quarter of revenue, APL Logistics has almost two thirds of its business in the America’s, with trades such as movements between the US and Mexico for large vehicle manufacturers being key. Therefore this deal will transform Kintetsu both in terms of its business and geographical profile as well as its finances.
The implications for Neptune Orient Line are less clear. Although results improved in the fourth quarter of 2014, the company reported its third consecutive annual loss last week at US$260m (net loss including recurring items) with the liner business driving the negative result. The company blamed issues such as volatility caused by the problems at the US West coast ports for these results. However what is perhaps more problematic is the fact that it remains a medium sized player in a tough market with limited ability to drive economies of scale. The money from the sale of APL Logistics may be useful to service NOL’s debts but the attraction of a more radical strategic move may be too great to ignore. Klaus-Michael Kuehne, part owner of Hapag-Lloyd has on several occasions suggested that a merger between NOL and Hapag would make sense, something that NOL has rejected. However Kuehne might now be tempted to repeat his suggestion.
