INFLIGHT caterer and ground handler Sats : S58 0% has entered into an agreement to acquire Paris-based air cargo handler Worldwide Flight Services (WFS) for a maximum total consideration of about 1.3 billion euros (S$1.9 billion), a move that will propel the mainboard-listed company into a global player in the air cargo market.

In an announcement on Wednesday (Sep 28), Sats said this acquisition would result in an “unmatched global footprint” that would cover trade routes responsible for over 50 per cent of global air cargo volumes across the likes of Asia-Pacific, Europe and the Americas. 

Under the agreement, Sats will acquire all the interests in WFS from an affiliate of investment firm Cerberus Capital Management for an enterprise value of about 2.3 billion euros. This consideration was arrived at on a “negotiated arm’s length basis” and determined after taking into account the financial performance and financial position of WFS, among other factors. 

Sats intends to fund the acquisition through an equity fundraising worth S$1.7 billion, with the balance amount to be funded through internal cash resources. The company said it has also obtained an acquisition bridge facility for a Singapore dollar equivalent amount of up to 1.2 billion euros. 

Sats said the structure and timing of the equity raising exercise has not yet been determined, but could comprise a renounceable rights issue of new shares to existing shareholders on a pro-rata basis, and could also be combined with a private placement of new shares to institutional or strategic investors. 

The proposed acquisition will be accretive to Sats’ earnings per share (EPS). On a pro-forma basis, the company’s 12-month EPS for the period ended Mar 31 will increase to S$0.054 excluding the effect of intangibles amortisation, and S$0.032 including the effect of intangibles amortisation, from S$0.018.

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Based on financial figures for the same period ended Mar 31, the acquisition is also expected to result in an increase in revenue to S$3.8 billion from S$1.2 billion. 

Earnings before interest, taxes, depreciation and amortisation (Ebitda) on a pro-forma basis will be pushed up to S$445 million from S$94 million before synergies, with potential run-rate Ebitda synergies in excess of S$100 million over the medium term, the company said. 

Following the acquisition, Sats will become the largest global air cargo handler, and the company’s portfolio would become more geographically diversified with an increased focus on cargo handling – a sector with “proven resilience and supported by structural growth tailwinds”. 

The combined entity will have a total of 135 cargo stations and a total cargo volume of over 9 million tonnes.

Some of the synergies that the deal will bring include e-commmerce partnerships across the world and the acceleration of cargo automation.  

Although the global air cargo handling market is “growing and resilient”, Sats noted that structural headwinds are present. The tailwinds include sustained e-commerce growth, a growing demand for high value cargo-handling capabilities, as well as an evolving customer mix. 

Temasek, which holds a stake of just under 39.7 per cent in Sats, has agreed to vote in favour of the transaction. Sats will convene an extraordinary general meeting in early 2023 for shareholders to vote on the deal. 

The transaction is expected to close by end-March next year. Other conditions for the deal include customary regulatory clearances and other customary closing conditions, Sats said.