Deutsche Post is buying Britain’s Exel for an agreed 3.7 billion pounds ($6.7 billion) to tap the fast-growing market for supply chain management and make up for falling sales at home. Europe’s biggest postal operator, set to lose its German monopoly on standard letters by 2007, said on Monday it would pay 1,244 pence a share, 48 percent above Exel’s closing price on July 7, the day before speculation began of a possible bid for the UK firm. Deutsche Post, which owns courier DHL, said it would pay 900 pence in cash and 0.25427 of its own shares for each Exel share.

The deal will create the world’s biggest logistics, sea and air freight group, and in particular boost Deutsche Post’s position in the fast-growing contract logistics market, which involves long-term deals to manage companies’ supply chains. Deutsche Post, looking to expand abroad and outside mail ahead of competition in mail delivery in Germany, said Exel’s strength in British, U.S. markets and Asian markets would complement its dominance in continental Europe. The deal will double Deutsche Post’s logistics business, giving it about 29 percent of group revenues on a proforma 2004 basis compared with 24 percent for mail. It will also lift revenues from international operations to above 50 percent.

Deutsche Post said it would pay for the cash part of the deal from existing liquid funds of almost 5 billion euros and expected to retain a solid A-rating with credit agencies. It will also increase its share capital by around 7 percent. At 1120 GMT, Deutsche Post shares were down 2.6 percent at 19.46 euros, reflecting the planned issue of new shares as well as some concerns the German firm was overpaying. Exel shares were up 0.5 percent at 1,234p.

The German firm said it expected the deal, the biggest in its 500-year history, to boost its earnings in the second year after completion, which it expects in December. Cost savings should reach 220 million euros annually by 2008, it said. The deal depends on the agreement of 75 percent of Exel’s shareholders and of cartel authorities.

Analysts said there was still a chance of a counterbid, but Exel’s backing for the Deutsche Post deal made it less likely. “The only likely counter-bidder would be UPS and for UPS at this price level buying Exel would be value destroying,” said Andrew Beh, analyst at ING Financial Markets. Exel Chief Executive John Allan said Deutsche Post was offering a “full and fair price.” The firm had not received any rival approaches, but would consider them if made, he added.

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Sources: Reuters and Deutsche Post

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