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NOL to sell APL Logistics to Japan's KWE for US$1.2b
NEPTUNE Orient Lines (NOL) has agreed to sell its profitable logistics business, APL Logistics, to Japanese logistics group Kintetsu World Express (KWE) for US$1.2 billion.
The group revealed on Tuesday that it has chosen KWE from three other competitive bids, but said that the sale is pending shareholder and regulatory approval. It added that the net proceeds of the sale would be used to strengthen its balance sheet and used to repay its borrowings.
Although NOL reported a third consecutive year of pre-tax losses last week, APL Logistics remained its profit-generating unit compared to the group's liner shipping business - APL.
APL Logistics contributed US$1.66 billion in revenue and US$80 million in core earnings before net finance expense, tax, depreciation and amortisation (Ebitda) for the financial year ended Dec 26, 2014, representing 19 per cent and 25 per cent of the group's consolidated revenue and core Ebitda, respectively.
In a media briefing yesterday, the group said that it needed to unlock the potential of the logistics company and help it achieve its ambition, as NOL's current share price does not reflect the fair value of its logistics business, which it estimates to be US$1.7 billion.
"We needed to see to what extent we could unlock shareholder value, which we believe is trapped in shareholder price. To what extent could we improve the gearing of our book and to what extent we could help APL achieve its ambitions," Ng Yat Chung, group president and CEO of NOL, said.
"Today, NOL does not have sufficient resources to support the growth of the liner business and logistics business. To allow APL Logistics to fully recognise its growth ambitions, it therefore needs to invest far more than it is (getting) today."
Although a listing of APL Logistics - an idea that the group last year revealed it was exploring - could have unlocked shareholder value and given the company the resources it needs to achieve its potential, Mr Ng acknowledged that it would not have had much benefit to NOL's balance sheet. NOL added that the sale will also allow it to focus on improving its liner shipping business.
In an IPO, he added, "returning minority stake in APL Logistics makes no sense as it is similar to an outright sale", while NOL keeping a majority stake in its spun-off logistics business would "also not have made sense" as the management would continue to be distracted.
So it opted for a sale, which would halve NOL's net gearing - from 2.25 to 1.08.
The aggregate purchase price, to be paid in cash, in return for all of NOL's shares in APL Logistics, represents a 15x multiple to the APL Logistics' reported core Ebitda for FY2014, NOL said on Tuesday. In terms of precedent M&A transactions, the mean of 9.8 times places the value of APL Logistics at US$800 million, while for logistics businesses, the mean valuation of about 9x multiple would value the company at about US$900 million. Based on all three valuations, NOL said it chose KWE because it was the highest bidder, as the US$1.2 billion it offered was a premium, and also because it has the highest closure certainty and can support APL Logistics' ambitions.
"Since 2013," said Satoshi Ishizaki, group president and CEO of KWE, "we have laid out a strategy to strengthen our international presence, especially in the US and Asia. This transaction fits right into our strategy. We intend to retain the headquarters of APL Logistics in Singapore and to run it as a separate unit."
Tokyo Stock Exchange-listed KWE has total assets of US$1.4 billion, with revenue of US$2.4 billion and net income of US$81 million, as at March 31, 2014. Citigroup Global Markets Singapore and HSBC are acting as financial advisers to the NOL board in connection with the transaction, which is expected to take place in mid-2015.
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