Shares in UK Mail (LSE: UKM) are topping the London market’s leader board this morning after the firm’s German peer, Deutsche Post AG pounced on the company.
According to today’s press release on the matter, the boards of Deutsche Post and UK Mail have reached an agreement on the terms of a recommended cash offer of 440p per share in cash for the entire issued share capital of UK Mail. The offer values the equity of the firm at approximately £242.7m.
As well as the cash purchase price UK Mail shareholders will be entitled to receive a 5.5p per share interim dividend.
Disappointing deal
Even though Deutsche’s offer represents a premium of approximately 43.1% to the closing share price on 27 September, today’s offer will be a disappointment to long-term shareholders. A little more than a year ago shares in UK Mail were trading at around 540p per share, a full 100p above the offered price. What’s more, at the beginning of 2014 the shares at 690p, 57% above Deutsche’s offer.
Nonetheless, it looks as if the merger will go ahead. UK Mail’s management is recommending the offer to shareholders and barring any competition concerns or blocking votes from large shareholders, Deutsche Post has a clear runway.
Competition concerns?
Deutsche Post owns the well-known DHL brand, which is already active in the UK. Regulators may have some issues here. By taking over UK Mail, Deutsche will remove one of its competitors in the already highly concentrated UK delivery market. After the merger, Royal Mail will be the enlarged group’s only sizeable competitor, a development that could be a red flag for competition authorities.
Bailout
The past 12 months have been rocky for UK Mail. Last year the group made the headlines for all the wrong reasons when it developed a problem handling parcels of a certain size at its new £20m sorting facility near Coventry. As a result, in the first half, its pre-tax profit fell 82%, and chief executive Guy Buswell was forced to step down in November. Pre-tax profit fell 28% overall for the group’s last full financial year to 31 March.
UK Mail claims that the issues at its sorting hub are now behind it but that hasn’t stopped the market turning its back on the company. Ahead of today’s bid, the shares had lost 18% excluding dividends over the past 12 months. Still, after last year’s troubles City analysts are expecting the company’s earnings per share to jump by 41% for the year ending 31 March 2017.
The bottom line
Overall, today’s offer for UK Mail is relatively good news for shareholders. However, for long-term shareholders, it’s rather underwhelming. But barring any competition concerns it looks as if the deal will go ahead and a higher offer is unlikely to emerge.
