Proxy adviser ISS recommends Sats shareholders approve WFS acquisition

PROXY adviser Institutional Shareholder Services (ISS) said Sats shareholders should approve the proposed acquisition of air cargo handler Worldwide Flight Services (WFS), as it considers the deal an “effective investment opportunity”.

In its report published Jan 5, ISS noted WFS’ expertise in the cargo handling industry, handling services and expansive global network as factors supporting the deal.

“With WFS as an indirect wholly owned subsidiary of the company, it is expected that the company will be able to capture more of the cross-border logistics market and successfully extend its presence across the key leading hubs,” ISS said.

Furthermore, it noted that Sats would be able to tap WFS’ resources and create business plans that optimise operational efficiencies, yield cost savings, and increase productivity.

“The proposed acquisition is expected to provide an opportunity for the group to serve a diverse customer base, increase cargo handling capabilities, accelerate innovation to drive sustainable business growth, and boost long-term financial results,” it said.

ISS also considers the valuation of WFS to be favourable. It noted that based on the negotiated enterprise value of 2.3 billion euros (S$3.3 billion), Sats is acquiring WFS at 9.7 times the latter’s implied earnings before interest, taxes, depreciation and amortisation (Ebitda) over the last 12 months (LTM) to March 2022.

This is lower than the estimated average multiple of 11.6 times for comparable transactions of meaningful scale involving companies in the air cargo handling sector. These include the acquisition of Swiss aviation services company Swissport by HNA Group in 2015 and the privatisation of aviation services company John Menzies in 2022.

The valuation also compares well with the 10-year average of comparable asset-light logistics companies at 13.7 times.

ISS noted that as a split-funded purchase, the proposed acquisition also gives Sats flexibility to avoid putting too much pressure on any one funding stream.

Sats has announced it intends to raise up to S$800 million via a renounceable underwritten rights issue to partially fund the acquisition, which is expected to cost the company S$1.8 billion.

Another S$700 million will be raised through a term loan, plus S$320 million from the company’s internal cash.

Temasek, which holds 39.9 per cent of Sats through subsidiary Venezio Investments, and Sats’ directors intend to subscribe for their entitlements to the rights issue.

The extraordinary general meeting for shareholders to vote on the proposed acquisition will be held on Jan 18, 2023.

Shares of Sats ended flat at S$2.84 on Monday (Jan 9).