By Gavin van Marle

The first signs of a shareholder revolt appeared at U.S. forwarder UTi Worldwide over its board’s recommendation to accept the purchase offer from Danish 3PL DSV. DSV tabled a $1.35 billion offer for UTi on 9 October, offering long-suffering investors the chance to exit the company at a price of $7.10 per share – an offer one advisory company acting on behalf of UTi shareholders yesterday described as “paltry” and called on them to reject.

Sterling Capital Management yesterday filed a Schedule 13D form with the US Securities and Exchange Commission (SEC), which it is obliged to do if it has a shareholding greater than 5 per cent. “In our opinion, UTI shareholders should vote against such a low offer and encourage DSV among other strategic players to consider an offer that places a reasonable control premium for this top-20 global logistics player, Sterling MD Brian Moran wrote in the filing.

In a letter to UTi Chairman Roger MacFarlane, Sterling’s senior ND Eduardo Brea argued that after years of investment UTi now had a “gold plated” IT platform; had almost completely overhauled its executive management team; and was once again winning new business, all of which would raise its valuation above the DSV offer. He wrote: “As longtime shareholders, however, we believe that DSV’s of $7.10/share grossly undervalues UTI Worldwide. After seven years of substantial investments, capital raises and management turnover, we were led to believe that we were in the ninth innings of a turnaround at the company.”

Last week, reaction from investment analysts contacted by The Loadstar suggested that the acquisition price might be on the high side, with one suggesting it was a “hefty price, given current operating outlook”, but Mr. Brea argued that the DSV offer effectively undervalued UTi by 50 per cent compared with other recent high-profile takeovers of logistics companies. “With modest additional sales momentum, UTI has the capability to return to adjusted EBITDA levels above $200 million. The company was able to generate such a level in 2007, 2008, and 2012 at sales levels not too dissimilar to current trends. Using a “more normal” $200 million EBITDA threshold values, the current DSV offer at a paltry 6.75x EBITDA or almost a 50 per cent discount to offers for other logistics players,” he wrote.

Kintetsu’s recent $1.2 billion acquisition of APL Logistics was valued at 15x EBITDA; Japan Post’s $5.1 billion takeover of Toll was 13x EBITDA; UPS’s acquisition of Coyote Logistics was 18x; while Echo Global Logistics, CH Robinson and XPO Logistics all paid 11x EBITDA for Command Transportation, Freightquote and Pacer, respectively.

“DSV’s offer, in short, substantially undervalues UTI Worldwide. Furthermore, DSV comments on its conference call that it believes it can achieve meaningful margin improvement from UTI in just a couple of years as well as the increase in DSV’s market capitalization north of $500 million since the announcement attest to this.

“This is not the outcome that places a reasonable private market value on UTI Worldwide for its owners. We intend to vote against the transaction,” Mr. Brea concluded.

In December last year, DSV admitted that informal discussions had failed to agree a valuation, and announcing the $1.35 billion offer earlier this month, DSV Chief Financial Officer Jens Lund said of the failed approach: “We had some preliminary discussions and, based on these, we didn’t find it relevant to proceed. But it is clear that there have been some changes in the performance of UTi and now there is a good match between what we buy and what we pay.”

The filing revealed that advisory clients of Sterling had deployed around $43.7million in purchasing UTi shares.

Reprinted courtesy of The Loadstar (