The DB Schenker sale has moved into the final round as Maersk and Bahri (Saudi Shipping Line) dropped out of the race. This leaves DSV and the CVC Capital Partners consortium as the only remaining bidders. The final decision on the sale is expected in the second half of 2024.
DB Schenker, is a major global logistics company, currently being sold by its parent company, Deutsche Bahn (DB), which is Germany’s national railway company. This sale is part of Deutsche Bahn’s strategy to streamline operations and reduce debt. DB Schenker provides transportation, warehousing and supply chain management services globally. It also operates a leading asset based European transportation business of which DB Bahn is a major customer. The expected proceeds from the sale are valued at approximately €15 billion and intended to help Deutsche Bahn invest in the years ahead in its core railway operations and infrastructure.
DSV and CVC Remaining Bidders
Acquiring DB Schenker would significantly boost DSV’s scale and service offerings in air, ocean, and land freight as well as its global warehousing foot print. DSV aims to become the largest global logistics provider and overtake DHL. In the past few years, it has achieved high growth mainly through acquisitions of competitors such as Panalpina and Agility. DSV is known for integrating acquisitions quickly often through significant layoffs.
The CVC bid is based on a consortium of private equity and sovereign wealth funds led by CVC Capital Partners and the Abu Dhabi Investment Authority (ADIA).This consortium is likely attracted by DB Schenker’s profitability and growth potential. The involvement of sovereign wealth funds like ADIA highlights Abu Dhabi’s focus on diversifying investments and strengthening infrastructure capabilities.
Through ADIA, the largest of the Abu Dhabi based government wealth funds, the Abu Dhabi government is likely interested to further expand its logistics investments from recent years to become a global logistics leader. ADQ, another Abu Dhabi based government wealth fund is already owner of Port of Kezad, AD Ports and Etihad. The DB Schenker acquisition combined with the activities of these other companies would boost Abu Dhabi’s regional and global logistics reach and likely strengthen its Kezad Port position as alternative to DP World and Jebel Ali in Dubai.
Another interesting point in the CVC/ADIA bid is that it might offer DB Bahn an ongoing stake in the new company. DB Bahn is already DB Schenker’s largest customer for freight and warehousing services in Germany and beyond. That partnership might also lock in significant freight volumes longer term. Some analysts have speculated that Abu Dhabi could offer DB Bahn a stake in its Etihad Rail network. In 2013 a JV partnership between Abu Dhabi and DB Bahn called Etihad Rail DB was first launched and oversaw the set up and stage one roll-out of the UAE rail network. This partnership was concluded in 2022 but who knows this partnership could somehow rekindle as the UAE looks to play a role in moving freight via rail from Asia to Europe as an alternative to the Suez Canal sea route.
Both the DSV and CVC/ADIA bids have pro’s and con’s in the mind of industry analysts. Danish DSV, with its reputation for large layoffs in major acquisitions will likely be seen by German politicians and trade unions as a threat. On the other hand, it has significant experience in large scale logistics acquisitions, integrating workforces, processes and IT systems.
The CVC/ADIA bid will likely bring deeper pockets and more workforce guarantees. With its own limited global logistics experience and resources, CVC/ADIA will likely lean more heavily on the existing DB Schenker management and look to invest and expand the company further instead of immediately looking to retrench personnel. That could be an important point in winning over German unions and politicians.
Other Options
There is a lot of regional rivalry between the UAE and KSA in who will play the largest role as future regional Middle Eastern logistics gateway. The DB Schenker acquisition would be a further step in recognizing KSA’s ambition in building its own regional gateway through KSA as well as becoming a global logistics player. Last year it launched Riyadh Air which it wants to develop into a major global airline with Riyadh as gateway. There are also major logistics and ports infrastructure developments underway in Jeddah and Dammam.
Therefore, Bahri might somehow jump back into the race. Saudi Arabia (KSA) is currently on a major diversification drive with a range of large infrastructure and logistics projects across the country. The DB Schenker acquisition would bring more expertise into KSA’s ambitions to become a major regional logistics player. At the same time, DB Schenker with its well-established global logistics network, could act as a logistics vehicle in allowing Bahri to become a large global player.
Another option could be that DB Bahn pauses or retracts its sale of DB Schenker. However, that’s happened before as DB Bahn has already for many years looked to sell the company. Many in the international logistics industry view this long-winded sales process as a badly managed business case. Industry analysts have for many years commented that this situation has turned DB Schenker into a “lame duck” unable to significantly invest and take advantage of market opportunities to expand on its own merits.
One other option could be to turn DB Schenker into an IPO and “float” the company on the German stock exchange as a separate company. However, an IPO at this stage would take several years to prepare. This would further procrastinate the sale of DB Schenker and short term it would not bring DB Bahn the €15 billion it is looking for to reduce its own financial debt situation.
In summary, with DSV and CVC/ADIA in the final bidding phase, we should soon learn more about where this process is going and how it will conclude. For sure, the current DB Bahn management is under immense pressure to show they can negotiate a final deal.
Eelco Dijkstra, International Editor, Global Supply Chain ME magazine
