Danish group DSV in the race for rail logistics subsidiary

It is the largest privatization in Germany in years and involves proceeds in the tens of billions: the sales process for DB Schenker, a subsidiary of Deutsche Bahn (DB), has entered a hectic final phase. Late on Wednesday evening, the Reuters news agency reported, citing anonymous government and company representatives, that the contract would be awarded to the Danish logistics company DSV. However, there was no confirmation from DB: the sales process is confidential. A spokeswoman explained when asked that the company does not comment on bidders, details of discussions or the amount of bids.

The interested parties: CVC versus DSV

Schenker is one of the heavyweights in the global logistics industry. The company, which operates in land transport as well as sea and air freight, generated sales of EUR 9.4 billion in the first half of 2024 with over 70,000 employees worldwide.

In December 2022, the Supervisory Board instructed the DB Management Board to examine a sale; a bidding process was initiated at the end of 2023. In the end, only two interested parties remained in the race: the private equity company CVC and DSV. This meant that two very different concepts were or are facing each other: DSV is a strategic investor and would integrate Schenker into its own group. CVC, on the other hand, is a financial investor who wants to make the company fitter and bring it to the Frankfurt Stock Exchange after three to five years. Its offer is supported by the sovereign wealth funds of Abu Dhabi (Adia), Qatar (QIA) and Singapore (GIC).

A decision could be made within days, according to well-informed sources even before the Reuters report. According to this information, both bidders have submitted binding offers of around 14 billion euros for a complete takeover. The proceeds are to remain in the railway, which is a state-owned company, and will be used primarily to reduce debt. At the end of June, the DB Group reported net financial debt of 33 billion euros.

DB loses cash cow

However, with the sale of Schenker, Deutsche Bahn is also losing a financial crown jewel, whose profits have always been able to at least partially compensate for the losses of other group divisions. In the first half of the year, DB Schenker achieved an operating profit (adjusted EBIT) of 520 million euros, while the entire group had to record an operating loss of 677 million euros and a loss after taxes of 1.2 billion euros.

Against this background, the state as owner is interested in the sale on the one hand in allowing DB to concentrate on its ailing core business, rail operations in Germany. On the other hand, however, it is aiming for the highest possible inflow of funds when the transaction is completed. The debt reduction is also intended to prevent rating agencies from downgrading DB’s credit rating after the separation from Schenker, thus making it more expensive to raise outside capital.

While the two offers mentioned are similar in size, they differ not only in their strategy but also in their financial details. DSV wants to transfer the entire purchase price when the transaction is closed. CVC, on the other hand, wants to hold back one billion for the time being and link its payment to the achievement of the business plan formulated by Schenker itself. This difference could speak in DSV’s favor.

Letter to the railway boss

In addition to the offer of a 100 percent takeover, CVC has submitted a modified offer as a remedy, which provides for a so-called reinvestment: In this variant, Deutsche Bahn could retain a stake of up to 24.9 percent in Schenker with an investment of around one billion euros and later (at the IPO) generate proceeds of 2 to 2.5 billion euros. The total proceeds from the sale would therefore amount to up to 16 billion euros, argued the financial investor.

CVC may have seen its chances slipping away in the last few days. In any case, the financial investor explicitly referred to this modified offer in two identical letters to DB CEO Richard Lutz and to Werner Gatzer, Chairman of the DB Supervisory Board and former Secretary of State for Finance. The letters have been leaked to various media outlets and are also available to the NZZ. Between the lines, it is clear that the financial investor feels disadvantaged in the decision-making process.

The key points of the offer will be sent directly to the addressees, “since, to our knowledge, our complete offer was neither presented nor discussed in detail in the relevant steering committee,” wrote CVC, among other things. Given the enormous economic and location-political importance of the sale, it is important that the process takes into account the best economic offer for the railway and the federal government and that no pre-determinations are made.

In response to a request on Wednesday afternoon, DB also said that the sales process was confidential. “The most important criterion remains that a sale must be economically advantageous for the railway,” added a company spokeswoman.

Concern about jobs

CVC received support from an unusual source: employee representatives. On Wednesday afternoon, at the request of the general works council, 15-minute vigils were held in front of Schenker offices in several German cities. The service workers’ union Verdi supported the action, which was intended to send a signal for the preservation of jobs.

In an internal letter, which was reported on by several media outlets, Verdi explicitly spoke out in favor of CVC as the buyer. The fact that the union is supporting a financial investor, a representative of the guild that is otherwise often denounced as “locusts,” is due to concerns about jobs. The union members fear that there could be massive job cuts, especially at the company headquarters and in overlapping business areas, if DSV were to win the deal and wanted to exploit synergies by integrating Schenker.

At the same time, they hoped that if CVC were awarded the contract, far fewer jobs would be lost because Schenker would remain independent and would still need a headquarters in Germany, for example. Proponents of the CVC offer point to the takeover of the Swiss logistics company Panalpina by DSV, which was agreed in 2019, as an illustration. Many jobs were lost after that too.