DSV Says Top 100 Clients Commit to Group After UTi Takeoverby
Keeping biggest clients after buying UTi was top priority: CEO
Share buybacks may be reintroduced in 2017 as debt shrinks
The biggest acquisition in DSV A/S’s history is proving a success after the transport company’s 100 biggest clients all committed to the combined group.
Chief Executive Officer Jens Bjoern Andersen says keeping customers was a priority after DSV bought UTi Worldwide Inc. in a deal that was first announced in October and sealed early this year. That means the third plank in DSV’s post-merger plan, which includes synergies and cost cuts, is on the right track, he said.
Shares in the company, which were down more than 2 percent earlier in the day, traded 0.5 percent higher as of 1:41 p.m. in Copenhagen.
“Keeping the customers is very important for DSV,” said Lars Heindorff, an analyst at SEB in Copenhagen. “They have a strategy of keeping the front office operations unchanged to begin with to limit the loss of clients.”
“The first signs are that the integration is going well, we’re off to a fine start,” Andersen said in an interview on Wednesday. Feedback from UTi’s biggest customers “has been very good, but we also know that they expect us to deliver. We have met with them to present our case and told them, in all modesty, that we believe the new combined company will be able to provide them with a better service.”
DSV closed the $1.35 billion purchase of UTi in January after the Long Beach, California-based firm had struggled with profit warnings and cut jobs. Its share had dropped 61 percent in 2015 before DSV announced its takeover offer in October.
“UTi’s two main challenges are IT system problems and too high costs,” Heindorff said. “It should be relatively easy for DSV to fix both.”
UBS AG’s Dominic Edridge on March 21 lowered his recommendation on DSV shares to sell from neutral, saying the company may have overpaid for UTi and that “realizing the synergies and profits forecast may be more challenging than the market believes.”
Andersen, 50, says there “have been no negative surprises. But it’s important to underline that it’s a company that was in trouble. We were aware of that.”
DSV, which has bought more than 30 companies in the past decade, has used the purchases to become the world’s fourth-largest freight forwarder. UTi was the first big transaction since DSV’s $850 million takeover of ABX Logistics Worldwide SA in 2008.
“The big acquisitions always teach us something and so will UTi,” Andersen said. “Historically, we have had more problems with the small acquisitions than the big ones. It’s often easier for people in a big company to adopt to the culture of another big company.”
DSV, which is about 20 miles west of the Danish capital Copenhagen, has said it expects the UTi deal to yield synergies of 1.5 billion kroner ($230 million) within three years, while integration costs will also amount to 1.5 billion kroner. The company plans to resume its share buyback programs when after reducing debt to its gearing target. That will now happen as early as next year, the CEO said.
“We could possibly be ready for a new acquisition toward the end of 2017, but we need to be done with the integration of UTi first,” he said. “First we want to show our investors that the UTi purchase is a success.”