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Kuehne & Nagel Hands VTG Heavy-Rail Flows to Focus on Containers

Kuehne & Nagel (KNIN) International AG, the world’s No. 1 sea-freight forwarder, will fold parts of its rail-transport business into a venture controlled by VTG AG (VT9), owner of Europe’s largest private railcar fleet.

The transaction will boost VTG’s share of the market for moving industrial goods and materials such as iron ore while sharpening Schindellegi, Switzerland-based Kuehne & Nagel’s focus on container transport. VTG, which is better established in liquids and agricultural products, will have a majority stake in the new business, the companies said, without being specific.

Kuehne & Nagel’s Road & Rail unit, the smallest of four by revenue, has suffered eight straight years of operating losses, including a 16 million Swiss-franc ($17 million) shortfall in 2012. Today’s deal advances plans to concentrate rail work on container traffic in support of the main sea-freight business.

“This is an important strategic step for VTG as it gives access to Kuehne & Nagel’s customers away from the volatile agricultural business,” said analyst Felix Wienen at Berenberg Bank in London, who has a “buy” rating on VTG and estimates the deal may concern sales of 60 million euros to 100 million euros ($78 million-$131 million).

VTG, which has 54,000 railcars, rose 4.3 percent, its biggest intraday jump in 3 1/2 months, before trading little changed at 14.23 euros at 11:35 a.m. in Frankfurt. The stock has added 17 percent in 2012, giving a value of 304 million euros.

Kuehne & Nagel gained as much as 1.2 percent and was later priced 0.9 percent higher at 106.70 francs in Zurich for a value of 12.8 billion francs, down 3 percent for the year.

Deutsche Bahn, DHL

Today’s move is unlikely to aid a turnaround of the Swiss company’s surface-transport unit, which is dominated by trucking activities, said William Foggon, also of Berenberg Bank.

The deal, which will cover the whole of Europe into Russia and Turkey, builds on a 20-year partnership via the Transpetrol petrochemicals venture, in which VTG holds 74.9 percent, with its ally owning the rest.

Kuehne & Nagel’s road and rail division, centered on overland transport with trucks, should improve its result this year as sales gain as much as 5 percent, Chief Executive Officer Reinhard Lange said April 15.

While the company doesn’t report separate figures for the rail business -- which competes with Deutsche Bahn AG’s Schenker unit, DSV A/S (DSV) and Deutsche Post AG (DPW)’s DHL -- volumes have been under pressure after a shift to roads, its annual report says.

Sales at VTG’s rail logistics unit rose 0.9 percent to 297 million euros in 2012, falling short of targets on tough market conditions, according to its annual report. Spokeswoman Monika Gabler said she could not reveal what activities will be part of the merged operation, since talks haven’t been concluded.

Final terms following the signing of a letter of intent will be subject to the approval of both boards and antitrust authorities. A decision is expected in the second half.

To contact the reporter on this story: Richard Weiss in Frankfurt at rweiss5@bloomberg.net

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net

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