DSV; updates to ~€15b bid for DB Schenker

Apologies, we actually missed this but DSV is 'reportedly' now the only bidder alongside the PE group {CVC NA Equity}. Saudi Arabia's Bahri, who was reportedly in with the highest offer previously, has since dropped out according to reports from Reuters, see here.

This is strong credit negative update for DSV on potential (sizeable) supply and rating pressure. At reported €15b valuations this acquisition would be large; DSV generates €1-2b/yr in FCF, carries €6b in gross debt and €0.9b in cash. DSV's EV is €39b for reference so this around 40% of its size.

DSV does have a history of doing large acquisitions (ranging up to 4x its own size!). Last we see is $4.2b (~€3.9b) acquisition of GIL - a freight forwarding and contract logistics provider. That was financed with equity raise (GIL took 8% stake in DSV pro-forma) and cash. We don't know what it will use this time but worth noting equities keep rallying each time it (reportedly) gets closer to winning the bid - a worrying sign for us that markets seem to not be expecting much equity financing and/or expect synergies to outweigh dilution.

It was asked about Schenker late last month in earnings call but again refused to comment if it was even in the bid. Analyst danced around the question by asking how high it would be willing to run leverage; it left answer broad saying "we have a good cooperation with our rating agencies and then we can maintain our, our rating even if we are outside the 2.0 for a period of time, as long as we prove that we are able to pay back and get below the 2.0 again". It was levered net 1.8x at the end of June.

Rotation into Maersk (Baa1/BBB+) does still give spread pick-up but we will need to circle back on Maersk given earnings.