Prospective buyers anxious for TNT offering

Feb. 1, 2006
Almost immediately after the December announcement by TNT that it would sell its logistics division, buyers started to approach Goldman Sachs. In a segment

Almost immediately after the December announcement by TNT that it would sell its logistics division, buyers started to approach Goldman Sachs. In a segment with sluggish financial performance, the reorganized and revamped third party logistics group is performing well. “Where else can you buy a global supply chain company with the breadth and depth of knowledge of TNT Logistics?,” asks David Kulik rhetorically.

“Sometimes in order to improve a company, you’ve got to sort of blow it up,” observes Kulik, group managing director, TNT Logistics. At times, his efforts to restructure the logistics division of TNT may have felt like an exercise in demolition, but the result, he reports, is a division that is performing well and is in the best shape to move forward. Kulik credits a strong management team that has helped to accomplish the restructuring and which will go forward with him. That future is what many in the industry are watching.

TNT, parent of the Logistics, Express and Mail groups, decided to exit the logistics market and sell its logistics division. The vote of the board was unanimous, says Kulik. That includes his vote.

The mail business is important to TNT and it is a growth business, Kulik explains. With many European post office operations being privatized by 2009, TNT’s European Mail Network (EMN) is poised to grow.

The express business is also going well, he continues. TNT recently announced another acquisition for its express unit, this time in Spain. It has also made some major acquisitions in growing markets like China.

But from a capital standpoint, logistics is the least productive. TNT Logistics had great cash flow in 2004 and made about €150 million in profit (2005 figures had not yet been released). TNT Logistics is one of the most efficient profit producers in the third party logistics market. “If you take a look at our top 10 competitors, and if we use global competitors as a basis, our margins are in the 75th or 80th percentile of return on sales. The industry is not performing well,” explains Kulik.

That looks very different from the Mail and Express divisions. Mail has 16 million customers in The Netherlands and millions more in the UK, Germany and elsewhere, Kulik points out. Express has 300,000 customers. Logistics has to round up to reach 1,000 customers.

The business models are very different. Logistics is a contract business where Express and Mail depend on large-network strategies. And, though Logistics also requires capital to grow, Kulik says it was clear much of the capital TNT generates would be directed to the cash-hungry networks. That doesn’t mean the three former siblings won’t continue to work together. Kulik says he uses the services of other TNT divisions where they are the low-cost, high-quality provider. Similarly, those groups use TNT Logistics where it makes sense in their model. “Mail, Express and Logistics will have the benefit of maintaining a business relationship under service level agreements, there wasn’t a compelling reason why we had to be owned by TNT in order to provide that service,” says Kulik.

All of this adds up to the logistics unit being sold intact. It’s a €3.4 billion ($4.1 billion) operating unit with 11 different business units and 37,000 employees worldwide, continues Kulik. TNT’s advisor, Goldman Sachs, says since the December 6th announcement that the logistics unit would be sold it has received what Kulik describes as “an extraordinary amount of interest.” About half of the interest is from financial buyers and the other half is from strategic buyers. Strategic buyers would be complementary to TNT Logistics’ business, says Kulik. The types of companies that could be strategic buyers are a major freight forwarding company, a shipping company, or an express company, he points out. A financial buyer would look at the logistics unit’s earnings potential and cash flow and usually holds an investment for two to five years, he continues. If there’s a prospect of TNT Logistics going public as a stand-alone company, it would be at the end of a relationship with a financial buyer.

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